Real Estate Price Management: Many Shortcomings

 

Although property prices have dropped a lot from the peak in the overheating development period, it is not enough to regain the trust of people. Most of them still expect that the property market will return to its true value. However, it is very difficult to determine the real value of real estate because no investors have announced construction costs to the public.

 

Dr Dang Hung Vo, former Deputy Minister of Natural Resources and Environment, said property price management is still based on the way of thinking backdated to the time of self-subsistence. As we have not shifted price management from self-subsistence mechanism to market mechanism, it seems that we do not need to require publicity and transparency of real estate investors. This may lead to the distortion of price composition. “We have kept our pricing method and pricing structure for a long time. Price is thus a ‘dead’ factor rather than an operating factor in the market. And, when the pricing is not correct, regulatory decisions on financial instruments for real estate market management will be slanted. Certainly, property market authorities have not had effective financial tool for management," Dr Vo analysed.

 

For affordable social housing, this segment is managed and evaluated by State agencies (price composition, selling price rate, etc.). But, in some projects, the price of social housing is still higher than that of commercial housing projects, while the government has given much priority to the former.

 

Dr Dang Hung Vo said that authorities do not think the price is an active factor and is decided by the market rather than set by authorities. Even with social housing, we calculate steel, cement, management and other costs and then sum them up as we did in the subsidy period. In the market mechanism, the price is an active factor and created by competition among businesses. If we open social housing tenders to enterprises on competitive principle, bidders with better prices will win. Then, the price of social housing will be lower than that of commercial housing.

 

It is reported that real estate businesses do not publicise construction costs because their hidden costs, usually pay for officials, are too much. “Many investors said ‘smoothing’ costs account as much as 25-30 percent of total costs. Publicising their costs is not a difficult task for companies because their accountants know how to make spending reasonable, but the real expenses for their projects are always covered by vague elements. And, indeed, only investors know how much they are," said Dr Vo.

 

Mr Cao Sy Khiem, former Governor of the State Bank of Vietnam (SBV), said hidden costs in construction are not small and they are added to selling prices. Consumers will eventually incur these. Given current incomes and prices, consumers cannot afford to buy homes, resulting in an increase in inventories. ‘Smoothing’ fees are engendering disastrous consequences to the real estate market and the entire society.

 

He added that ‘smoothing’ costs may be bred by policy loopholes, corruption of State officials, or lax and ineffective supervision of authorities. Investors do not want to pay ‘smoothing’ fees but they cannot do their work without paying for these. To prevent and settle this reality, the root of these fees must be found and removed, he noted. Violators must be strictly treated.