Apartments "standing alone in the market"

Dr. Le Xuan Nghia, a member of the National Financial and Monetary Policy Advisory Council, voiced worry in a recent remark that the real estate market is still struggling, despite the fact that apartment prices have been "standing alone in the market" and rising substantially in recent months.

Dr. Le Xuan Nghia specifically mentioned that several regions in Hanoi have had a significant increase of more than 30%, with the lowest being 15%. For example, residences in Ciputra Urban Area, West Lake District, are now valued at more than a hundred million VND per square meter. Some new structures in the Smart City Urban Area, Nam Tu Liem district, cost more than 60 million VND per square meter, sometimes surpassing 80 million VND.

The expert called this as a "frightening rate" that is "unimaginable for anyone to afford" if costs continue to rise. He said that the current increase in apartment prices is the result of an imbalance between supply and demand, with supply steadily declining. The paucity of new items on the market has created pent-up demand, resulting in repeated price hikes.

The limit  ed primary supply has also resulted in a decrease in secondary market supply because homeowners are hesitant to sell, fearing that "prices may climb higher, producing supply blockages and triggering a market bubble," Dr. Nghia explained.

Meanwhile, Ms. Do Thu Hang, Senior Director of Research and Consultancy at Savills Hanoi, observed the real estate market from late 2023 to early 2024 and saw tiny fevers in the apartment segment.

Ms. Hang explained the recurrent "peak rises" in apartment prices, stating that supply remained constrained. In the first quarter of current year, main market supply totaled 12,928 units, up 9% quarterly but down 34% yearly.

While the supply of flats has been limit  ed for a long time, the market is now embracing fresh demand from investors in addition to restrained demand from consumers looking to buy houses.

According to Ms. Hang, if investors previously saw flats as "consumables" and did not invest in this market, their thinking has shifted dramatically.

Investors increasingly consider apartment products in large cities with dense people, as well as mature economies and civilizations, to be an asset. These flats may be rented out for a profit while also increasing in value over time.

In the setting of low bank deposit interest rates, alternative investment channels such as land and resort real estate are unconvincing and do not provide actual returns, making flats a more appealing investment commodity in the market.

Urgency to improve supply

When discussing strategies to boost supply, Dr. Le Xuan Nghia underlined the need of promoting new supply and increasing market competitiveness, particularly for social housing and inexpensive housing items.

However, to date, the deployment and disbursement of credit funding for social housing "has nearly failed." The 125,000 billion VND package has been dispersed at a glacial pace, with not even 1% reached after a year of implementation. The expert claimed that "we cannot rely entirely on banks to push up social housing," because banks are also profit-driven businesses.

"Without competing sectors, apartments stand alone in the housing market," stated Dr. Le Xuan Nghia.

According to Mr. Nguyen Quoc Khanh, Vice Chairman of VARS, apartment prices are now much higher than their actual value due to rising construction costs, and projects have been bought and sold in circles from one owner to another, increasing the costs of land and project input procedures, as very few projects have been approved in recent years, and very few projects have completed procedures and begun construction. This is also why apartment costs have risen by tens of millions of VND per square meter compared to prior years.

To reduce apartment prices, Mr. Khanh suggests expediting project clearance, minimizing the period to access land, diversifying investors to generate competitive processes, and allowing investors immediate land access, all of which would increase supply and lower housing prices.