Owning a House Remains Distant Dream for Low-wage Earners

10:40:22 AM | 12/4/2021

One of the frequently-mentioned clear consequences after each property frenzy in Vietnam is that the opportunity to own residential property for people in real need is becoming more distant.

In addition to unreasonable property structure that led to shortages of high-end housing and affordable housing and weak new supplies, one of the headaches is the rising prices are narrowing the chance of housing ownership.

Indeed, in the past 2-3 years, land prices in the Thu Duc City of Ho Chi Minh City increased too rapidly. Even though the COVID-19 pandemic and purchasing power weakened, prices in many places still rose by 20-70%, even in some places where prices soared by 2-3 times in a year.

And the price trend is gradually spreading to suburban districts such as Binh Chanh, Nha Be, Hoc Mon and Cu Chi or neighboring provinces like Binh Duong, Dong Nai and Long An. Actually, real estate prices seem to have no signs of weakening since 2018.

According to industry experts, a rise in land prices due to a 5-10% is normal, but a 50-70% increase or more is problematic. With the current high land prices, it becomes even more difficult for low-income workers to buy houses for living. In the next few years, when the cheap land bank of real estate developers has run out, the opportunity for buyers to find affordable apartments in the outskirts of the city will be almost no longer available.

According to the Vietnam Real Estate Brokerage Association, despite the impacts of the pandemic, real estate developers have not announced any price cut in their projects. Instead, they prefer offering gifts to buyers.

Before, during and after the pandemic, selling prices of middle and high-end apartments were almost unchanged. Prices of the affordable segment were pushed up to the mid-end level. Residential land prices also picked up on scarcity.

Mr. Su Ngoc Khuong, Senior Manager of Savills Vietnam, pointed out that if a family has an average income of US$2,500 and saves over VND100 million a year, it is not easy to buy a 70 square meter apartment whose price is VND30 million per square meter.

In many countries, people spend about only 20-30% of their total income by installments. While Vietnam's interest rates are high, incomes are low, and housing prices are high, buying a house is very difficult.

Given high financial costs, it will be very hard to have an apartment costing VND1-2 billion in the next 5-7 years although the land fund is still abundant and the infrastructure is good. Let alone inflation, housing is getting further out of reach of the people, he added.

With current real estate projects, the value of land accounts for 40-60% of the cost. It takes 3-5 years to complete a project since it is licensed. Therefore, in order to have affordable housing for the people, the government needs to solve this matter.

According to representatives of JLL Vietnam, Thu Duc City will be the destination for projects pursuing this "city in the city" model thanks to a large land bank of much lower population density than HCM City.

Land prices in Thu Duc City soared when there was a rumor about its establishment. Without containment, speculation would blow prices away in the new city, causing project developers to struggle to find suitable land banks, and if any, will push financial burdens on people in real need.

In addition, the public transport system in Thu Duc City, linked to other districts, is still incomplete. While waiting for large-capacity public transport such as the metro, the city needs to develop more public bus routes, especially to interlink residential areas to subway stations in the future. Moreover, it is possible to study to promote more taxi boat services, a new type that is being supported by many people.

Mr. Nguyen Hoang, R&D Director of DKRA Vietnam Company, admitted that the recent announcement on the formation of Thu Duc City made some projects very expensive. Currently, there is a paradox that due to the COVID-19 pandemic, the purchasing power has decreased significantly from the previous year but prices still pick up 10-15%, especially in the east of HCM City.

As housing prices have risen sharply in recent years, there is a dire need for making a space for affordable housing programs for people in real need.

According to the Ho Chi Minh City Real Estate Association (HoREA), at present, mid-range apartments (two rooms) cost about VND2.5 billion (averagely VND35 million per square meter), about 20 times higher than the median saving of VND8-12 million a month or around VND100 million a year. Affordable apartments (costing VND2 billion each or less VND25-30 million per square meter) and social housing apartments have hardly been available in HCM City in the past two years.

Also according to a study by Batdongsan.com.vn, the apartment selling price in Ho Chi Minh City is 7 times higher than the income of highly paid workers, 10 times higher than the middle-income earners, 17 times of low-income earners and 28 times for young people’s income.

Mr. Nguyen Van Hung, Head of Vietnam Real Estate Brokerage Association - Southern Chapter, said, high prices are a stubborn problem. Therefore, the market needs many affordable housing projects to meet real needs.

In particular, according to industry experts, after each frenzy, real estate prices reach a new level and buyers seem to watch and wait for the fever to go by with a thinner opportunity to buy their real estate

 Source: Vietnam Business Forum