What to Expect from Vietnam Real Estate in 2014?

Positive signs have emerged since the end of last year, in both the South and the North. According to the price of real estate transactions in the apartment segment announced by the Hanoi Department of Construction, the price of a number of areas on the capital rose slightly in the fourth quarter of 2013 compared with the previous quarter, indicating that the decline from 2012 shows signs of stopping.

 

In Ho Chi Minh City, the real estate inventory of the following quarter decreased compared to the previous quarter, transaction also follows an upward direction. According to many experts, although the market last year was riddled with many difficulties, it shows several differences compared with the previous year, particularly in the source of information.

 

Previously, information on the market was often incomplete and ambiguous, which leads to expectations and illusions of both buyers and sellers. Now, those who are interested in this market can easily learn full information so they know if they should participate or not in the real estate market and what problems they will have to face if participating.

 

It is because of this that the market no longer freezes. On the other hand, it has liquidity and increased slightly after each quarter, despite the rise (about 5-10 percent) is not strong enough to form a kick.

 

There are two different and quite opposite viewpoints. One assumes that price is determinant and because current real estate prices are too high compared to the actual value, the average income as well as the paying ability of people remain limited, the market will continue to freeze.

 

If prices do not continue to decline sharply to about half the current price, the buyer will not participate in the market, which will lead to a line disruption of investment and real estate businesses.

 

The second opinion assumes that we should not be too concerned about price, for whether prices in the upcoming time will increase or not is not important; liquidity is the issue that matters. Improved and increased liquidity means that the market’s supply meets the market’s demand, thus it will flourish and vice versa.

 

However, there exist some distinctive problems in segments of the market. The affordable housing segment suiting most people should be quite large, but the source remains limited. The authority seems to focus only in social housing, but shows no interest in the commercial affordable housing segment.

 

For example, Ho Chi Minh City said this year it will complete two social housing projects including 793 apartments with a total area of 67,000 square metres, complete and put into use seven remaining dormitories of the Ho Chi Minh city National University which will offer accommodation for 13,500 students, complete a housing project for workers with an area of over 18,000 square metres which will offer accommodations for 2,500 workers, and start three new projects with more accommodation for 10,400 workers.

 

Ho Chi Minh city will also start and build 22 old apartment lots with the scale of about 3,300 apartments, complete 3,000 apartments in the resettlement programme of 30,000 households, hand over nearly 2,300 resettlement apartments in the programme of 12,500 resettlement apartments in Thu Thiem.

 

Meanwhile, businesses are still waiting to see if they can convert from commercial housing projects to social housing project in order to enjoy policies on tax incentives as well as the loan interest in the subsidy package worth VND30 trillion.

 

Although the Ministry of Construction said that it always encourages business to convert from commercial housing to social housing to suit the needs of the market, the right to convert lies on the hands of local authorities. Particularly, the procedure time of assessing the application very difficult, the number of projects to be converted remains very small.

 

In the premium segment, by contrast, the supply is abundant while demand is not large, making many people assume that this segment can not flourish this year. However, many enterprises assume that those with high income still need to buy luxury homes and villas to stay.

 

In addition, over the past time, due to capital constraints, a number of projects have to be temporarily suspended so the supply has not got too much. The luxury apartment segment has its own customers, so projects having good location, close to the city centre, convenient for transportation and equipped with utilities will still be able to be sold.

 

Middle apartment segment has yet to form for sellers to identify the needs and the ability to pay of the buyers. Many businesses choose to design apartments with small and medium area with high class which meet the demand of living, investing and leasing to meet the diverse needs of buyers.

 

This is the biggest concern of the functional ministries from last year to this year. Therefore, at the beginning of the new year, the Ministry of Construction has been assigned to coordinate with the State Bank of Vietnam and the Ministry of Finance to study further the proposal on implementation of policies on financial and credit support in long-term for the development of social housing, affordable commercial housing and rental housing.

 

The Ministry of Construction is also assigned to implement synchronous measures to remove difficulties for the market, focus on solving difficulties in administrative procedures, accelerate the deployment speed of projects to increase supply of social housing, and accelerate the disbursement of the support package worth VND30 trillion.

 

Reportedly, after more than seven months of implementation, the amount disbursed in this package supporting interest is less than 3 percent, even though the State Bank has formal written approval on the lower interest rates for home loan package to only 5 percent a year instead of 6percent a year as before and it will increase the number shareholding banks participating in the disbursement.

 

Besides the directing from the authorities, Ho Chi Minh City Real Estate Association also proposed that enterprise a making affordable housing be allowed to access this loan supporting package.

 

While social housing segment is riddled with too many procedures and barriers, cheap commercial house’s procedures are less complicated, more convenient, so once enjoying the support package, businesses will have more momentum to build more affordable housing.

 

This petition, if approved, will open a new direction and the support package worth VND30 trillion will be disbursed quickly, opening up new opportunities for the real estate market.

 

This is consistent with the opinion of the representatives of the Ministry of Construction when assessing the prospects of the real estate market this year that commodity structure will be in favour of small and medium apartments, drawing back attention of those in true need.

 

The stability of prices and the increase of the number of transactions in small-scaled social housing and commercial housing will be a key leading factor affecting and spreading to other segments.