In the past two years, the real estate market has been partially frozen due to unaffordable prices. Authorities, investors and the public are very concerned about the suggested solutions to reset the development of the property market.
Supply doesn’t meet demandAt the scientific workshop on “Real Estate Market: Reality, Reasons and Solutions” jointly held by the Land Survey Research Institute (under the Ministry of Natural Resources and Environment) and the Market Price Scientific Research Institute (under the Ministry of Finance) in Hanoi, Dr. Vu Dinh Anh, from the Financial Sciences Institute, said one of the basic unreasonable factors in the urban property market of Vietnam is the contradiction in the price and solutions to unfreeze the market. Generally, prices on the real estate market fluctuate. Two land fevers in 1992-1993 and 2001-2002 pushed prices to new sky-high levels (and without considerable price falls), negatively affecting the economy. By 2004-2005, the real estate market began freezing partially because of falling prices and fewer transactions. The notion of a partially freezing market is due to the fact that while the land market is frozen, the construction field (offices and commercial areas) is still developing strongly thanks to a shortage of office blocks for lease in major cities. The occupancy rate in luxury blocks exceeds 95 per cent.
Another unreasonable factor in the property market is the gap between prices of real estates and incomes. As compared with the national and personal incomes with real estate prices from 1990 until now, a senior official from the Ministry of Construction confessed: “The real estate price in Vietnam is ranked among the highest in the world.” For example, a 100 square meter land lot in the outskirts of Hanoi costs VND1.5 billion (US$93,750), which can buy 700 square meters of land in Melbourne, Australia. Paradoxically, the average personal income of people in Melbourne is 50 times higher than that in Vietnam. As regards civil servants, only 11 per cent can afford to buy a house and the affordable percentage of workers in industrial parks and export processing zones is much lower.
The final illogical factor is the official real estate market’s development targets and the State’s intervention. In order to create goods for the official property market and eliminate underground market, the best solution is to grant “red books” to the real estate owners. However, due to unsound land taxation policies and illogical land price frames, many people refuse to receive “red books”. As a result, the underground market is still developing. For example, Hanoi only granted around 3,200 “red books” to residents in its 14 districts in the first quarter of this year, fulfilling merely 4.65 per cent of the target set for this year. Notably, Soc Son and Thanh Tri Districts issued no “red books” from early 2006.
Price Cuts to Heat up the MarketAccording to the Deputy Minister of Natural Resources and Environment Dang Hung Vo, the reason leading to the freezing market is the imbalance in supply and demand. Sky-high prices widen gaps between supply and demand on the market. Hence, to stop a partially freezing real estate market, a reduction in real estate prices to levels suitable to the economy’s development is a must.
Actually, the price cut needs meticulous calculations because the supply increase means allowing the division of a large land lot into smaller pieces for sale, allowing the transfer of lands to other investors, and encouraging investors to ask for loans for new real estate projects. The key and preferable measures to increase demands are to lend to low-income earners to buy houses on instalments, to call for foreign investment, and to allow non-permanent residents and overseas Vietnamese to buy houses.
According to Dr Pham Sy Liem, vice chairman of the Vietnam Construction Association, two solution groups, namely market solutions and government solutions, need to do this at the same time. As for the market, unmarketable houses need to see price cuts. This is feasible if the house traders don’t insist on attaining 18-30 per cent profits, the possibility of reducing prices by 15-20 per cent is within reach. In addition, if they find difficulties in selling houses, they can let them at an expected rate of 1/100 selling prices/month.
As for effective property development projects, it is necessary to make amendments to their products. For example, these projects can be turned into housing projects for low-income earners, commercial centres, schools or hospitals for lease. As for government solutions, according to Mr. Liem, the governments should support house buyers, especially young civil servants and experts, who have stable jobs. The government should also create favourable conditions for real estate investors, such as collecting housing taxes on purchased houses (still unused), exempting income taxes on houses for lease and reducing local land price frames.
Lan Anh
Vietnamese
