Ex-deputy minister sees better times ahead for low-priced property market

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Residents walk in front of two apartment buildings in Hanoi

The low-priced housing segment will improve next year, Dang Hung Vo, a former deputy minister of natural resources and environment, tells Vietweek.

Why does the property market not recover despite all the measures taken to revive it?

Dang Hung Vo: Because of the large investments involved, the property market has often a big inertia. It means it takes a long time for the market to recover from a period of sluggishness. If there is a boom, that too lasts a long time.

In 2013 we helped resolve many of the difficulties faced by developers like capital shortage and large inventories. The government has cut some of their taxes and land rent and extended the time for them to pay land use fee. It has helped developers overcome difficulties, but not yet affected the market.

This year the government rolled out a supporting package of VND30 trillion (US$1.43 billion) to spur the low-income housing segment of property market,

70 percent of it to subsidize interest rates for low-income buyers and the rest earmarked for developers of low-priced housing projects. The support for developers of low-priced housing has been effective though it has not really created many choices for consumers. The supply of low-priced commercial housing projects and social ones has increased. Early this year it was difficult to buy an apartment in social housing projects due to the low supply. But we can do it easily now, and have greater choice in terms of prices and locations. 

However, disbursement of the package has been slow. The requirements for home buyers to demonstrate their loan repayment ability and housing situation are too complicated. So far over VND800 billion has been disbursed. It is too small. The disbursement should have been faster. The issue should be resolved in 2014.

If demand is spurred, the low-income housing segment could soon recover. This is a factor that could increase the confidence in the market, creating a foundation for dealing with issues in the medium- and high-priced segments.

Another issue we need to resolve but have not done much about is the inventory of medium- and high-priced housing. We have established the Vietnam Asset Management Company to deal with the housing inventory attached with bad debts. However, it has not been effective since we do not yet know what is form of bad debts structure in the housing inventory. In the beginning of the year, it was officially reported that almost all properties with bad debt were in the form of completed housing, but at the end of the year, statistical data show that 70 percent were in the form of residential land - without housing.

The property inventory has reduced slightly as the government has allowed developers to make changes to housing projects so that they could be used for other purposes or divided into smaller ones with lower value. We have done something to reduce the inventory, but the task at hand is still huge.

The draft revised housing law and revised real estate business law has an important renovation that expands real property market for foreign consumers. It is a good vision on resolving the housing inventory in current time and also for long term development of housing market.   

There is a concern about excessive supply of low-priced housing in future, the same situation that existed with high-priced housing a few years ago. What do you think about it?

The concern is reasonable but comes too early since the supply of low-priced and social housing is still low. Many people have not yet been able to buy a low-priced house. We need to work out a housing planning and its implementation. We have yet several serious problems with urban planning based on population, housing, infrastructure, public services and not calculated the number of high,  medium-, and low-priced houses we need.

The low-priced housing segment has developed only since 2009, so it is too early to worry about excessive supply in the segment.

But we need to make housing plans in a careful and feasible manner. This is a fundamental issue for a sustainable housing market.

Doan Nguyen Duc, chairman of Hoang Anh Gia Lai, has recently announced the company will pull out of the property market. Do you think it is because of the market situation?

I don't think one investor's decision can strongly affect the market. A company could decide to invest in a market and leave the market for another. I don't believe that an investor in Vietnam could affect the market. Vietnam has many property investors, including many big ones - Hoang Anh Gia Lai is just one of them. The property market was not controlled by Doan Nguyen Duc, so his decision will not have any impact on the market.

Have property prices bottomed?

Firstly, we need have a definition what is the bottom of market. I think we can agree that the bottom of housing market is the price calculated on production cost of house. In this meaning, they have fallen nearly to the bottom. Now you can buy a 40-50 sq. m house for just VND500-600 million. If it is reduced further, builders will face losses.

Obviously, we can do more to reduce the price, for instance by using more advanced construction technologies and materials and reducing management cost and also capital using cost.

How do you see the market next year?

The low-priced segment will see better growth next year. It will see a larger number of transactions. But we need to do more to help the market recover soon. The government should consider allowing banks to accept the huge volume of gold owned by people as deposits to develop the property market. The current policy, which does not allow gold transactions or deposits, has prevented the property market from benefiting.

The Housing Law and the Real Estate Business Law are in revising process and to be adopted by the National Assembly late next year. Under those laws, expats will find it easier not only to buy houses and also to have the transaction rights in Vietnam. This is a new decision and will contribute to strengthening belief and demand in the market.

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