Vietnam Ministry of Construction officially validated Circular 02/2013/TT-BXD on restructuring apartments in commercial housing projects, projects of constructing urban areas and converting commercial houses into social ones or service buildings.
According to experts, the Circular has opened the mechanism, one of two major reasons obstructing the conversion. However, there are also worries when the Circular is put into life.
Opportunity to clear the market
Recently, converting commercial houses into social ones in Vietnam has faced many difficulties. Since the Vietnam Government approved the conversion, 20 projects have registered for the conversion; however, the number of approved ones is very small. According to real estate experts, lacking implementation mechanism has lengthened project verification, causing difficulties for enterprises that want to convert their projects.
Circular 20/2013/BXD is considered a rain freezing the thirst by project owners, especially those with projects under construction with low liquidity.
As regulated in the Circular, commercial housing projects and urban area projects approved by authorities unimplemented or in progress with their restructures unsuitable with market demand will be converted into social houses. Tenement houses and low storey houses can be exchanged into social houses or service buildings such as hospitals, medical centres, schools.
However, the conversion can be conducted only if project owners have not signed capital contribution contracts or sales contracts with customers.
In case those contracts are signed, the conversion can be made with written agreements of all customers signing contracts.
Time for project verification cannot exceed 30 working days counted from the day of receiving regular papers.
Circular 02 is considered a legal base for project owners to convert projects if necessary. However, in the context of a frozen real estate market, when demand for low price houses is very high, demand for converting commercial houses into social ones will get very large.
Detailed regulations needed
Circular 02 is highly appreciated. However, according to Mr Tran Ngoc Thanh, Deputy Chairman of Vietnam National Real Estate Association, Ministry of Construction should soon issue detailed regulations for project owners to implement, ensuring their proper steps in projects and market access.
Real estate experts judged that enterprises’ profits will reduce after the conversion; however, they will solve output for their products, minimizing risks.
Mr Thanh also warned that project owners should have a comprehensive view and not concentrate on the conversion without researching market, investment value and project feasibility. Otherwise, limitations and deficiencies will occur.
“Do not convert with closed eyes. Or else there will be a wave of converting commercial houses into social houses, and the market will fall from one imbalance to another”, he said.
Currently, Hanoi has many social housing projects with oversupply. For example, Dang Xa 1 Urban Are with 946 apartments were offered for sales from May 2011, but after 15 selling sessions, they have not been sold out yet. Dai Mo Urban Area with 2 tenement houses CT1 and CT2 with an area ranging from 53-69 sqm faces the same situation.
Mr Nguyen Hai Hung, Marketing Director of Bac Son Investment and Development Company, said that if social housing is massively invested, it will face oversupply like commercial housing, not because people do not have demand, but because apartments do not satisfy their requirements. Therefore, converting commercial houses into social ones must be carefully considered, avoiding massive conversion and oversupply.
Besides, commercial houses have different designs, different level investment compared to social ones, therefore not every commercial housing project can be converted. Many experts warned that project owners must consider carefully. According to Mr Thanh, complete houses or houses under construction should not be converted. For example, converting commercial houses at price of VND20-30 million/sqm. into social houses at price of VND10 million/sqm. requires complicated changes in design, size and pressure restructure.
Therefore, careless converting may cause another kind of oversupply – new inventories in the future. The Government should elaborate strict interventions to reduce prices of social houses lower to increase consumption capacity of this segment, solving the core problem.
Luong Tuan
Vietnamese
