Apartment hikes hint at speculation return

Nguyen Kim Dung, an executive at a foreign-invested company, was surprised to see the price of apartments going up recently. “I spent VND3 billion ($125,000) for an apartment in January, and someone has just asked VND3.4 billion ($141,600) for it. I can earn 10 per cent within only two months,” she said.

In addition to raising the prices of new projects, old ones are going up, too. Tran Hoang Hai, a teacher at a university in Long Bien district, looking for an apartment for her parents nearby, is shocked by the current prices.

“My apartment cost around VND1.3 billion ($54,000) five years ago, but now all the housing here and in surrounding buildings are more than VND2.2 billion ($92,000),” Hai said.

According to CBRE Vietnam, a commercial real estate brokerage, last year prices of most projects increased sharply by 10-45 per cent on-year. And in 2024, apartment prices will likely increase by 16-24 per cent on-year.

With price rises maintaining at double digits, the Hanoi apartment market has witnessed the strongest price hike over the past five years. Previously, the average price climb in Hanoi apartments was very low at 2–3 per cent annually.

A senior expert from CBRE Vietnam’s Professional Services, said that housing supply was scarce now, while demand continued increasing.

“Last year, about 11,000 new units were launched for sale on the market. This was a minimal number, equalling 20-25 per cent compared to previous years. 2023 was also the fifth consecutive year that the Hanoi property market reported a decrease in supply, and the total number of new supplies was the lowest level over the past decade,” the expert said.

Meanwhile, demand in the market is huge due to Hanoi’s population growth and urbanisation rate. “This is the time for a boom of strong demand,” she added.

However, according to experts the key reason has been the low interest rates, which have been maintained for more than a year. A large amount of money that was deposited in banks for 1-2 year terms to enjoy high interest rates has reached maturity. That’s why they have decided to withdraw their savings to put money into real estate, including the apartment segment.

In the past, apartments were not an attractive segment for investors because the profit from subleasing each year was only about 5 per cent. However, the recent situation has changed with apartments, and investors can earn annual profits of 16 per cent at least, in addition to the cash flow from rental. So the efficiency of investing in housing is excellent, much better than depositing money in the bank.

Nguyen Quoc Anh, deputy director at batdongsan.com.vn, said that the prices would surge going forward, especially for the commercial housing segment.

“For commercial housing projects, developers must be proactive in compensating for site clearance at market prices. This also increases project investment costs, causing the high selling prices,” Anh said. “If housing prices continue to surge for a long time, it will ‘distort’ the property market, hindering middle- and low-income people from buying a house or an apartment.”

However, Hanoi Land Registration Office has yet to see any big surge in recent months. Even the number of applications submitted after the Lunar New Year decreased by half compared to the end of last year. Specifically, the office received more than 22,000 applications last November, and the quantity exceeded 10,000 applications in February.

“The number of registration applications has increased in the past two months, but there is no sudden change compared to the end of 2023. In the early months of the year, people’s psychology is not likely to buy real estate, so the annual number of deals and registrations often dips,” said Pham Hoai Nam, director of the Registration Office for Gia Lam district.

At the end of 2023, there were about 27,500 apartments in inventory in Hanoi, mainly middle and high-end segments (accounting for 85 per cent), and primary apartments (9 per cent). Thus, there is no shortage of supply in Hanoi, but only a shortage of affordable housing.

“However, some investors and real estate companies have provided market forecasts that lack transparency and conviction, pushing prices up to an incorrect value. People with a crowd mentality think that land prices will continue rising, so they are looking for houses right now. Homeowners and landowners have followed the rumours and raised selling prices unreasonably,” real estate broker Tran Tuan Binh told VIR.

Nguyen Thi Bich Ngoc, CEO and founder Sen Vang Group Vietnam’s real estate market cannot be in a bubble situation based on two reasons. Firstly, Vietnam’s market data is not systemised, so the information rarely reflects accurately the current situation of the market. This is a reality that will be very difficult to handle both in the past and up to the present time, leading to land fever due to widespread speculation. Secondly, even though many countries have transparent real estate market information, land fevers can still occur. The nature of the market is to accurately reflect the current status of the market, as well as the supply-demand relationship. The phenomenon of skyrocketing prices of housing in central district areas will lead to two scenarios in the near future when the real estate supply is more abundant due to the legal improvement. In areas with low supply and central locations, prices will continue to be the same or slightly increase due to high demand. In areas with more abundant supply, specifically tier-2 urban and satellite urban areas, prices will not increase and even gradually decrease due to the competitiveness of a new supply entering the market. However, in terms of whether it affects the entire market or not, my opinion is no. Currently, the market is completely determined by the end-users and strong finance investors. Therefore, it is very difficult and almost impossible for a bubble in the coming time. Vo Hong Thang, Director of Consulting and Project Development DKRA Vietnam It will be very difficult to see a real estate bubble during this period. Because the price increase is only concentrated in a few locations and a few projects, it does not represent the whole market. Regarding supply this year, the legal obstacles of projects have not been completely resolved. Many projects are delayed and in the finishing procedures process. So supply remains thirsty. Although three laws related to the market will take effect in 2025, it will take the market another 1-2 years to absorb the new policies and remove difficulties for projects. Secondly, even though people have a lot of money and most of them are keeping that in banks, investors’ psychology is not yet stable. They are therefore still in a “wait and see” status. This is mostly only for end-users who buy houses to live in. Therefore, there will not be a vibrant wave of real estate sales until the end of this year, or even early next year. From the beginning of the year, apartment and land prices are both increasing, but more so in Hanoi. This is because investors are currently very cautious when introducing projects to the market. Developers will prioritise higher liquidity than price increase because they want to have a more stable benefit. In particular, many investors offer very reasonable payment schedule and interest rate subsidies for home buyers to boost liquidity.