Markets & Prices

Last updated: Monday, April 22, 2019


Oversupply of High-end Real Estate

Posted: Thursday, December 06, 2018

In the first 10 months of 2018, the real estate market in the whole country showed signs of decrease both in supply and volume of transactions. Especially, the sign of reduction was very clear in the two big cities of Hanoi and Ho Chi Minh City, said the Ho Chi Minh City Real Estate Association (HoREA) in its latest report.

HoREA's report shows that in the first three quarters of 2018, the real estate market in many segments went down sharply, the silence of transactions made the market become bleak, the gap between supply and demand in many property segments also made many investors and experts worried about the future of this market.

According to HoREA, the real estate market has begun to show signs of slowing down since the first quarter of 2018 and this situation has continued in the next quarters, especially in the high-end segment. The oversupply was very clear in this segment in 2018. However, many experts said that the real estate bubble would not occur in the remaining months. However, the market still has many bottlenecks that need to be resolved soon.

In the first 10 months of 2018, the number of housing units supplied in 65 projects was 22,684 and the number of low-rise units was 1,075, with a total mobilised capital of VND43,761 billion (US$1.8 billion). By segments, there were 7,444 units in the high-end segment, accounting for 31.3 per cent. The medium segment had 11,731 units, accounting for 49.4 per cent. The low-end segment had 4,584 units, accounting for 19.3 per cent.

During period 2014-2015, the high-end property market was quite active with many newly promulgated laws, low interest rates, stepping up lending by banks and various freshly concluded TPP agreements. Many people expected that the trend of foreign investors looking for investment opportunities in Vietnam would be leverage for the development of the high-end segment. Until now, only the property market in Ho Chi Minh City, the luxury real estate projects in the central districts have been competing fiercely with the projects in District 7. Meanwhile, the trend of discounts and competing for market share have started to blow up.

HoREA said that the excessive shortage of affordable commercial apartments, social housing projects and especially rental low-cost housing for low-income earners or workers in the industrial zones, constituted potential risks to social stability. Although the real estate market is forecast to have overall steady growth, there have been signs of oversupply in high-end real estate, while there is still shortage in the low-end segment and low priced commercial housing.

Regarding the general assessment of the overall market situation, HoREA report said, in the first 10 months of 2018, the real estate market in the country had signs of decline in both supply and number of transactions. Hanoi and Ho Chi Minh City had the most obvious signs of decline.

In addition, HoREA also pointed out seven bottlenecks of the real estate market including: the State approval of the investment policy for enterprises receiving land use right transfers; difficult ground clearance; method of calculating land use fees; conditions for the transfer of real estate projects; no regulation on the use of land fund for payment of build-transfer contracts (BT); the credit for real estate and administrative procedures.

Although the real estate market has been quiet and there is a gap between supply and demand, HoREA still believes that a real estate bubble will not occur. HoREA said that the authorities would tighten construction permits of high-end apartment projects because Ho Chi Minh City is considering not licensing any more apartment projects from now until the end of 2020.

Luong Tuan

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