Demand for affordable apartments on the rise

The affordable apartment segment will be the star of the property market in the coming years, but its supply is increasingly scarce while the demand for this type of apartment remains high, according to an analysis by property services firm CBRE Vietnam.

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In the first half of 2018, the number of affordable apartments opened for sale in Hanoi and HCM City decreased by 20% and 36%, respectively, over the same period last year. CBRE forecast that the supply of affordable products will remain scarce until the end of this year.

In fact, most of the apartment projects that have prices ranging from VND1.5 to VND2 billion (US$64,377 to US$85,836) per unit have good transactions. At this stage, as the market for land near HCM City is cooling down, the money flow from investors is oriented towards middle-range apartments.

According to experts, the supply of projects which have apartments priced around VND2 billion each is scarce while the actual demand is quite large. Almost all of these projects quickly sell 80%-100% of their units when the sale begins.

Meanwhile, according to forecasts of many real estate experts, from 2020 onwards, construction enterprises will find it difficult to build affordable housing as the cost of construction per 1 sq.m is likely to increase, up to VND24 million per sq.m. Thus, a 45 sq.m apartment will cost about VND1 billion.

Su Ngoc Khuong, investment director of Savills Vietnam, said it is very difficult to build apartments priced from VND1-VND2 billion from now through the next five to seven years. Affordable apartment prices have been rising steadily for the last six years. Since 2012, the price of affordable apartments was VND13 million per sq.m; after five years, the price has increased by over 50% to VND18-VND20 million per sq.m and in the first months of 2018, affordable apartments’ prices are VND24-VND26 million per sq.m.

In addition to the increasing prices of land and construction costs, housing prices also reflect some other factors such as interest rates, labour costs, marketing and profits of enterprises; therefore, experts forecast it will be difficult to keep housing prices low.

In the first six months of this year, land prices in HCM City increased by 10%-15%. In some areas, land prices escalated by 40%-50% within a year. This poses a dilemma for anyone looking to purchase an affordable home.

Le Hoang Chau, chairman of the HCM City Real Estate Association, said that in order to build affordable housing, the land price must be reasonable, but high demand for land is keeping prices high.

Firms say it is difficult to start a new project at an affordable cost, due to a variety of costs for implementing the project, plus the payment for land compensation at market prices when clearing ground.

Moreover, the authorities’ approval process is time-consuming. Securing approval and beginning sale of products take at least three to five years. The longer the time, the higher the cost of the projects — an increase which customers have to bear in the form of higher housing prices.

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