Housing market barely budges, defying downturn expectations

By Ngoc Diem   December 24, 2023 | 05:00 pm PT
Housing market barely budges, defying downturn expectations
Apartment buildings to the west of Hanoi. Photo by Ngoc Thanh
Housing prices have not fallen during the current economic downturn, even going up in some segments, unlike during the 2008 recession when prices fell dramatically in some cities.

Since mid-2022, when the real estate market showed signs of decline, people have been expecting housing prices to fall as much as in 2008-09, when apartments were placed on fire sale in HCMC and Hanoi as owners tried to cut their losses.

By the end of 2008 housing prices had fallen by 30% for the year on average and up to 60% in parts of HCMC, according to the Ministry of Finance.

The downtrend lasted until 2012.

However, in the last 12 months both townhouse and land prices have only decreased marginally in the secondary market while apartment prices have been up in Hanoi and steady in HCMC, a VnExpress survey found.

In some places in HCMC, townhouse prices are down 15-20% as year-end financial obligations forced some sellers to cut prices.

Data from property listing platform Batdongsan also shows overall real estate prices are up 6% this year.

Analysts do not expect prices to slide from here because of the limited supply.

The number of new apartments built in Hanoi this year fell to a 10-year low, according to real estate market research firm CBRE.

Furthermore, 90% of that supply has been in the premium segment, resulting in a shortage of affordable housing.

Similarly, high-end housing has accounted for over 70% of the HCMC market in the last three years.

Pham Duc Toan, CEO of real estate agency EZ Property, says new housing projects have been few and far between in both cities in the last two or three years.

So developers can comfortably maintain high prices, he adds.

Le Hoang Chau, president of the HCMC Real Estate Association, agrees that the prolonged lack of new supply has led to many developers selling new projects, originally approved as affordable or mid-priced, as premium housing to maximize their profits.

Another factor keeping prices high is that there are few affordable houses and apartments for the premium segment to compete with, he says.

During the 2008 global recession there was a housing oversupply, with nearly half being in the affordable segment and mostly bought for self-occupation.

Nowadays property firms also have to cater to people who buy housing as an investment.

Even if property businesses suffer from negative cash flows, they cannot resort to price cuts, the director of a property developer in Hanoi says.

In some projects 60% buy to self-occupy, they say, pointing out that this means developers selling new projects at a lower price than previous or nearby ones will end up negatively impacting their customers and losing credibility in the market.

So, instead of actual price cuts, they have to adopt other promotion strategies such as discounts for early payment.

Legal disputes delaying construction and driving up costs make it hard for developers to lower prices even if they are willing to reduce their profits, Chau says.

He explains that in cases where developers have to pay compensation to land owners, they can only show 70% as cost with the remaining 30% seen as "profits" and subject to 20% income tax.

Dang Hung Vo, a former deputy natural resources and environment minister, believes removing legal hurdles and improving access to funding are key to boosting housing supply.

Unfortunately, some amendments to the Land Law and Law on Credit Institutions that could have been beneficial to the housing market have not been approved, he says.

The government needs to quickly effect these amendments to increase land and housing supply, he adds.

Chau recommends that property businesses should lower their profit margin and offer discounts and promotions to increase liquidity in the market.

They should focus on the affordable segment and adjust prices to match buyers’ incomes to make the market more competitive.

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