Demand for affordable apartments on the rise

Saturday, Aug 25, 2018 08:12

In addition to the increasing prices of land and construction, housing prices reflect some other factors such as interest rates, labour costs, marketing and profits of enterprises; therefore, experts forecast it will be difficult to tamp down rising prices. — Photo

The affordable apartment segment will be the star of the property market in the coming years, but its supply is increasingly scarce while the demand for this type of apartment remains high, according to an analysis by property services firm CBRE Viet Nam.

In the first half of 2018, the number of affordable apartments opened for sale in Ha Noi and HCM City decreased by 20 per cent and 36 per cent, respectively, over the same period last year. CBRE forecast that the supply of affordable products will remain scarce until the end of this year.

In fact, most of the apartment projects that have prices ranging from VND1.5 to VND2 billion (US$64,377 to $85,836) per unit have good transactions. At this stage, as the market for land near HCM City is cooling down, the money flow from investors is oriented towards middle-range apartments.

According to experts, the supply of projects which have apartments priced around VND2 billion each is scarce while the actual demand is quite large. Almost all of these projects quickly sell 80-100 per cent of their units when the sale begins.

In the area of Binh Duong Province, HCM City’s Thu Duc and Binh Chanh districts and District 9, projects with prices starting below VND2 billion per unit always attract investors, who are persuaded by the low prices to accept the risk of purchasing a unit before the project is completed. Although the rate of return is not large in the short term, this is considered a safe haven, suitable for investors with medium capitalisation. Most of the projects offering middle-range initial prices sell out quickly.

Units in completed apartment projects are significantly more expensive because they are safer, as there is no risk that the project will be canceled. Their prices have increased significantly, generally from 10-15 per cent. Prices in some projects have increased by 20 per cent in one year. This increase is due to a general rise in purchasing power among people looking for affordable apartments.

Land fund is still a difficult issue

Meanwhile, according to forecasts of many real estate experts, from 2020 onwards, construction enterprises will find it difficult to build affordable housing as the cost of construction per 1sq.m is likely to increase, up to VND24 million per sq.m. Thus, a 45sq.m apartment will cost about VND1 billion.

Su Ngoc Khuong, investment director of Savills Viet Nam, said it is very difficult to build apartments priced from VND1-2 billion from now through the next five to seven years. Affordable apartment prices have been rising steadily for the last six years. Since 2012, the price of affordable apartments was VND13 million per sq.m; after five years, the price has increased by over 50 per cent to VND18-20 million per sq.m and in the first months of 2018, affordable apartments’ prices are VND24-26 million per sq.m.

In addition to the increasing prices of land and construction costs, housing prices also reflect some other factors such as interest rates, labour costs, marketing and profits of enterprises; therefore, experts forecast it will be difficult to keep housing prices low.

In the first six months of this year, land prices in HCM City increased by 10-15 per cent. In some areas, land prices escalated by 40-50 per cent within a year. This poses a dilemma for anyone looking to purchase an affordable home.

Le Hoang Chau, chairman of the HCM City Real Estate Association, said that in order to build affordable housing, the land price must be reasonable, but high demand for land is keeping prices high.

Firms say it is difficult to start a new project at an affordable cost, due to a variety of costs for implementing the project, plus the payment for land compensation at market prices when clearing ground.

Moreover, the authorities’ approval process is time-consuming. Securing approval and beginning sale of products take at least three to five years. The longer the time, the higher the cost of the projects — an increase which customers have to bear in the form of higher housing prices.

“In order to develop affordable housing for the next three years, we have to target the land of the suburban districts and the nearby provinces. This means that the city needs to develop public transportation effectively so that people can live in suburban districts and easily get to the city,” Chau added.

But the issue of land prices is still important for project developers even in the suburbs, because it determines the cost of production and market liquidity.

Ngo Quang Phuc, general director of Phu Dong Group, said the increase in land prices causes an increase in input costs, which will affect the land preparation for the project in the near future.

According to Phuc, many landowners are demanding higher prices than the land itself seems to merit, causing many investors to think twice about purchasing. "The increase of land prices thanks to market demand is understandable, however, prices also depend on land’s features. For badly positioned land or land where the infrastructure is not synchronised, the recent price hikes are not reasonable,” he emphasised. — VNS

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