Ripple Effects of Price Cuts

In recent months, the Vietnamese property market started to witness flights of project developers when they ran out of patience and health to wait for the market to get warm again. They hurried to run with the last straw: Strong price cut to clear inventories as quickly as possible.

 

Not only southern businesses have significantly reduced prices but northern investors also have started up the race but the degree of aggressive reductions is huge. Investors offered new price levels or deployed flexible selling methods for recent projects in order to sell products and share with buyers.

 

That Dai Thanh project announced to sell apartments at VND10 million (US$500) per square metre shocked the market. Lai Chau Construction Company No. 1, the investor of Dai Thanh project in Thanh Tri district, announced it would sell its new apartments for US$10 million m2. Immediately, online forums were flooded with this information and many real estate brokers had the job to do after a long time of joblessness. Indeed, in the past month, this information caught the attention and interest of real homebuyers and the property trading floor of this company was rarely absent.

 

The surprising price also caused controversies among investors who expected to sell at high prices and called for dumping prevention. Many expressed concerns over the quality of the project at this low price.

 

However Dai Thanh project investor affirmed that the price of VND10 million per square metre was already profitable. Professor Dang Hung Vo, a top-notch expert, also said apartment construction is possible at this price.

 

Following the signal fire by Dai Thanh, many investors will have to reconsider selling prices if they want to sell their products at this time. They must take their tolerance if they cannot compete on price, or build houses with prices attractive enough to catch end-homebuyers.

 

However, northern companies are said to be quite conservative, except for Dai Thanh. Other apartment projects see a small discount of 5 - 10 per cent. They covertly slash prices because they fear to lose face if they publicly announce the rebate. After the market heard the information that VP3 Linh Dam project lowered prices to VND23 million per m2, an official of Housing and Urban Development Corporation (HUD) affirmed that VP2 and VP4 projects also decreased selling prices to VND27 million per m2 from VND32 - 33 million. However, this information has not been widely known.

 

The Dai Thanh case also forced some projects in Hanoi to introduce lower prices. Mandarin Garden project, invested by Hoa Phat Group, opened a mew selling round with lower prices by about VND10 million per m2. Westa project in Ha Dong district cut prices by VND5 million per m2 ...

 

Other condominium projects like Duong Noi, Golden Land and Golden Palace also slashed prices for the first time.

 

Villa prices have also slumped sharply. Land price in Kim Chung - Di Trach project in Hoai Duc district is being quoted at some VND30 million per m2 from more than VND40 million m2 late last year. Van Canh project previously quoted prices at VND47-55 million per m2, including crude construction, but prices are now about VND30 million per m2 for villas and VND25-27 million per m2 for semidetached houses.

 

Investors seem to be losing patience as the market continues to sink. Apart from preference home loan rates, interior completion and promotions, they have directly cut selling prices to speed up inventory sales.

 

But, the concern is whether the price cut leaves enough stimulating effect on the market demand?

 

General Director Nguyen Thanh Than of Dai Thanh apartment project said although prices are reduced to the lowest possible level, his company is still profitable if the apartments are sold out.

 

Earlier, Hoang Anh Gia Lai Group shocked the market with steep price cuts in its property projects. Doan Nguyen Duc, President of Hoang Anh Gia Lai Group, announced that property prices must be slashed much further to increase liquidity.

 

Insiders said profits are still achieved though prices sink sharply. Property price cut is likely to affect only reputation and brand name of projects while investors seem to have earned a certain degree of profit.

 

According to experts, apart from economic crisis reasons, the prolonged illiquidity of the real estate market is more or less caused by price factors. As soon as prices are brought down to affordable rates, buyers will be interested again and the market will be stimulated. No matter what or how they do, products must reach buyers. And, one of effective solution is to reduce the price. This solution can cause the biggest effect on the market but not all investors are willing to do although some have started to take quick step to run away.

 

To bring the price down, apartments can be subdivided to be more affordable. This approach is also supported by the Ministry of Construction though it confronts with the regulations on population density. However, this is also a trend.

 

It does not matter how they do, investors need to sell their products. The current market is for real end-buyers because speculators are trapped with their investments and are trying to escape. Prices will be decided by the market and prices will be further cut if products are unsellable. This is simply a rule. Obviously, the big price reduction by Dai Thanh is stimulating and appealing enough to catch buyers.