Super Small Apartment: Solution at “Market Bottom”

The real estate market has slumped for a long time and prices have steeply dropped in most segments. Biggest price reduction happens to unsellable middle- and high-grade apartments. Price cuts coupled with unsellableness have property companies to dilemma as the fund for their projects is primarily bank loans whose interest rates sometimes soared to 23 -24 percent per annum. Now, although lending rates for real estate have fallen to 20 percent or so, the market outlook remains lacklustre because of tightened credit policy imposed on non-manufacturing fields, including real estate. Unsellableness of completed and near-completed projects pushed many companies to the verge of bankruptcy. Many even ran away by handing over a part or the entirety of project.

 

The market is slightly revitalising after the State Bank of Vietnam (SBV) eased credit restrictions on real estate. However, most industry experts share the standpoint that the outlook remains bleak and the market will not been able to jump out of the current recession. At a recent conference held by the Business Forum Newspaper and the Vietnam National Real Estate Association, many participating businesses agreed that the real estate market had bottomed out. They meant that the market will surely go up and this is the best time to buy. Mr Phan Thanh Mai, Secretary General of the Vietnam National Real Estate Association, said the property market is seeing a plenty of opportunities of recovery in the second quarter of 2012 when it digests the central bank’s easing of credit policy. But, the deciding voice still belongs to buyers who mostly think it is unadvisable to take assets that may deprecate in the future.

 

This remark is absolutely grounded. The real estate market has plunged for almost two years and is being supported by easing credit policy and permit for troubled companies to reschedule debts.

 

Besides, the market will shape a new growth cycle after a long period steeped in difficulties. This time coincides with the easing of credit valve for real estate and exclusion of some loans from the group of nonmanufacturing sectors like construction, purchase of dwelling houses, and no limit on income sources. This means that homebuyers have an easy access to credits. At the same time, with loans being restructured and rescheduled, property companies will have more time to respond to the market changes. This measure also helps reduce current bad debt ratios at the commercial banking system. Banks in turn will be able to provide more loans for the property market.

 

Nonetheless, there are no signs of rapid market recovery. This also means that tracking the bottom is now a risky option. According to Lawyer Tran Vu Hai, the real estate market needs at least two more years to have positive changes, citing that more and more capital-sharing homebuyers come to his law offices to ask for procedures to withdraw capital from their projects. Dr Pham Sy Liem, Vice President of the Vietnam Construction Association, said the uptrend cycle of the real estate market is unlikely to take shape from now to the end of this year. The cycle in the world market is 7-9 years while the decline in Vietnam was just two years. Hence, it is hard to expect in a rapid recovery although developments in Vietnam are sometimes uncorrelated to the rest of the world.

 

While the market prospect remains dark, low-valued apartments with small areas are bright spots because it meets the urgent need in big cities. Many property developers quickly moved to this direction rather than their previously chosen middle- and upscale projects. Since the end of last year, many proposed authorities to allow construction of apartments with small areas of 20-25 square meters. Reportedly, the Ministry of Construction is inclined to accept this proposal and quickly finalising a plan for management of urban zone and apartment investment and construction to submit to the Government for approval. An important content is developers have to have 15 - 20 percent of apartments with an area from 25 square meters to 40 square meters. The lack regard to high-demand segment is also a reason for illiquidity on property market. Most buyers cannot afford high-valued assets.

 

This information kindles mixed opinions. Supporters expect that the meeting of supply and demand will boost up liquidity while protesters said that more slum houses or low-quality houses will be present across major cities.

 

Many businesses are very quick at building small apartments to sell to customers. Recently, FPT Danang Urban Joint Stock Company introduced its Smart Nano Flat FPT sample apartments with the smallest area of 25 square metres. Customers only need to make a down payment of VND33-99 million, depending on types of apartment, pay only VND5 million a month. They will receive the house in three years. Payment term is at most five years. Customers can receive houses without having to place collaterals. A discount of 24 percent is applied to one-time payment. A 25-square meter apartment is sold at over VND343 million.

 

According to the Housing Law, the minimum area for a commercial apartment and social apartment is 45 square meters and 39 square meters, respectively. However, instructive documents narrow the minimum area of a social apartment to 30 square metres. If the Government approved the newly proposed scheme, the market will have super small apartments. Although living levels of the people are low and the demand for super small houses is very high, architects protest because dwellers hardly have a good place to sleep, to cook and to do personal daily needs. The area provided in the Housing Law is based on scientific calculation on the basis of housing development strategy, population estimation and urban architecture among others. Many architects express their concerns about the presence of more slums in the future because very small apartments are degraded very quickly. Mr Pham Si Liem said the permission for construction of 25-square meter apartments is not good for urban development. A developed urban zone is constituted by a variety of factors, including housing standards for dwellers. Approved urban and residential projects are in line with sustainable overall apartment development planning and population density. If the proposal is passed, it will break planning.