What is the reason why real estate prices are still "anchored" at a high level?

The Government 's determination

The Prime Minister has just issued urgent document No. 527/TB-VPCP, announcing the Prime Minister's conclusion at the Conference on solutions to remove difficulties in credit growth for production and business, promoting growth and macroeconomic stability.

Notably, in the announcement, the Prime Minister requested the Ministry of Construction to guide real estate enterprises to restructure segments and reduce product prices. There must be appropriate, timely and effective solutions to restructure segments for people with real needs, social housing, housing for workers and low-income people.

Real Estate - What is the reason why real estate prices are still — Many moves in the market demonstrate the Government's determination to remove difficulties for the real estate market.

The above move continues to demonstrate the Government's drastic efforts to remove difficulties for the real estate market to recover and develop safely, healthily and sustainably.

Previously, at the Conference on solutions to remove difficulties in credit growth for production and business, promoting growth and macroeconomic stability on the morning of December 7, Prime Minister Pham Minh Chinh stated that banks and enterprises are in an economic ecosystem. If the economy develops, banks and enterprises will develop and vice versa, if banks and enterprises develop, the country will develop. Each person and each entity must share responsibility, "contribute to a storm" so that the country can overcome difficulties, then each person and each entity can overcome difficulties and have common development.

Raising the issue of real estate businesses complaining about difficulty in accessing capital. But in recent years, real estate prices have generally increased. If there are difficulties but they still want to keep the selling price the same, still demand "one-way", is there a common responsibility?

According to the Prime Minister, in normal times there are normal policies, and in abnormal times there must be abnormal policies. In times of difficulty there must be policies based on the spirit of “harmonizing benefits and sharing risks” to be appropriate, correct, and promote development.

Why is the selling price increased?

In recent times, the real estate market has been difficult but real estate prices are still "anchored" at a high level. Research data from the Vietnam Association of Realtors (VARS) shows that real estate prices have increased dozens of times in the past decade. In 2021 alone, the average house price has grown by double digits.

VARS forecasts that in 2024, primary apartment prices will continue to increase by an average of about 3 - 8%. Because short-term supply has not been resolved. Scarcity of new supply makes the market uncompetitive, businesses with apartment projects opening for sale at this stage are "kings", if they do not encounter cash flow difficulties, investors will continue to keep prices high to maximize profits. At the same time, the constantly improving infrastructure will continue to push the price level higher.

The high price of apartments is not only because investors try to keep the price high, but also because the investment and construction costs increase due to the increase in input material prices, labor costs, and financial access costs. In addition, the cost of creating land funds is too high and many "unnamed" costs arise when implementing investment, construction, and project development, making it difficult for investors to reduce prices.

Low interest rates and record-high inflation of the past have also contributed to the sharp rise in home prices, but the core problem is a shortage of supply.

Supply is increasingly scarce

Accordingly, the number of newly licensed commercial housing projects is very small and is on the decline, especially in the affordable and mid-range segments. Specifically, according to the Ministry of Construction's published data on housing and real estate market, in 2022, the country had 126 newly licensed projects, only 52.7% compared to 2021 and 17% in 2020.

Notably, there are no future housing projects in the affordable segment (priced under VND25 million/m2) eligible for capital mobilization and housing transactions in 2021 and 2022. The proportion of mid-range apartments (VND25-50 million/m2) eligible for capital mobilization and housing transactions has also continuously decreased by double digits since 2020.

VARS research data also shows that the number of affordable and mid-range apartments for sale has been continuously decreasing since 2019. Specifically, the total number of affordable apartments for sale in 2022 is only 10% compared to 2019.

The proportion of affordable apartment supply in the total supply of apartments for sale has also continuously decreased, from 30% in 2019 to 7% in 2022. In the period 2019-2022, the proportion of mid-range apartments also decreased to 54%, 46%, 34%, 27% respectively.

How to restructure segments and reduce product costs?

According to VARS, in order to restructure segments and reduce product costs, there needs to be "joint efforts", unification of viewpoints, implementation methods, and coordination of many subjects and components, from State management agencies to enterprises and banks.

On the part of the State management agency, first of all, it is necessary to study the plan to shorten the process and administrative procedures for investment and construction. Consider the plans to support businesses in calculating land use fees and site clearance. Currently, these are two items that account for a lot of the investor's expenses, directly affecting the price of real estate.

At the same time, it is necessary to take strict measures to deal with all acts that "make it difficult" for businesses in the process of investing and developing projects. Avoid incurring "grease costs", which are also invisibly added to the product price.

The State Bank needs to study and develop a credit program with preferential interest rates specifically for businesses investing and developing affordable housing and home buyers. There needs to be specific and clear mechanisms and policies to support investors if they want to restructure projects from high-end to affordable, or social housing.

For real estate businesses, it is necessary to proactively review the portfolio of investment projects. Sell part or all of the projects that are not suitable for current resources. Proactively restructure debt and plan cash flow. Focus capital on projects that are legally guaranteed, have feasible loan plans, can be completed early, and are easy to liquidate.

Reduce profit expectations, even accept selling at a loss, use profits from previous years to maintain operations. For new projects in the research phase, proactively orient towards the affordable price segment to ensure absorption capacity when launching products to the market.

Besides, real estate enterprises need to continuously innovate, research and apply technological achievements to improve management capacity, control risks and reduce costs.

N.Giang

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