Housing plan success depends on execution

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A view of Phu My apartment building in Ho Chi Minh City

The Construction Ministry's plan to tackle the shortage of resettlement housing by buying apartments from commercial builders with unsold inventories can backfire if its execution is not fair and transparent, experts warn.

The ministry recently submitted to the government a draft decree on resettlement housing development and management which, if approved, will allow investors of state-owned projects to buy apartments from private commercial and social housing projects to compensate people dislocated by various development projects.

The ministry said the decree is aimed at dealing with the high demand for resettlement housing which is estimated to climb to some 17.9 million square meters as of 2015.

In an earlier interview with the Saigon Tiep Thi newspaper, Minister Trinh Dinh Dung said they hope the move help will improve the quality of resettlement housing that has been widely criticized for poor building quality.

"The most important thing about the draft decree is that the government wouldn't have to involve in building resettlement housing ["¦ This can] create a breakthrough in developing and managing this need," Dung said.               

Many real estate companies have welcomed the plan, saying it would partly help them clear inventories that have been piling up due because of the prolonged economic downturn.

Nguyen Thanh Van, general director of real estate consultancy and management company First Quality Management, said that with the gloomy market, many businesses are willing to sell their apartments at cost price, or even at a loss, to retrieve their investment.

So it is totally feasible that the government can buy apartments at low prices, he said.

Nguyen Phung Thieu, general director of Saigon Gia Dinh Real Estate Company, said his company was willing to sell hundreds of its apartments in District 12 to the government at around VND10 million (US$474.95) per square meter, if necessary.

The VnExpress newswire recently quoted the fourth quarter 2012 report of property consulting company CBRE Vietnam as saying Ho Chi Minh City and Hanoi have over 28,000 and 20,500 unsold apartments respectively. The CBRE report said it would take Vietnam four to five years to end the current surplus.

The respective figures from the government are nearly 15,000 for Ho Chi Minh City and nearly 6,000 for Hanoi.

However, Pham Sy Liem, deputy general secretary of the Vietnam Federation of Civil Engineering Association, told Vietweek that the ministry's plan faced several challenges that need to be overcome if desired outcomes are to be achieved.

First, it is necessary to assure that apartments are bought at reasonable prices so people can afford them, Liem said.

Then, it is imperative that corrupt officials are prevented from joining hands with businesses in nefarious schemes that could see the government end up buying apartments at higher prices than their real value.

Liem suggested that the housing purchases are made through a bidding process, saying this would maintain competition among real estate companies.

Economist Nguyen Minh Phong also raised the same concern in an interview with online newspaper VietNamNet, insisting that the plan would be effective only through competitive bidding.

If not, many "complications" would arise, he said. 

Some businessmen disagreed with this view.

Nguyen Van Duc, deputy director of the Dat Lanh Real Estate Company in HCMC, saw no need for the ministry's plan.

There are around 5,400 resettlement apartments left unsold in HCMC because they are priced at VND15-16 million ($712.43-759.92) a square meter, making an apartment of  70-90 square meters cost over VND1 billion ($47,174), he said.

This is out of reach of displaced people with low incomes, particularly given that they receive just several hundred million dongs (VND100 million is $4,714) in compensation from investors for site clearance in the first place, he added. 

If social housing is the main target, as asserted by Minister Dung in his interview with Saigon Tiep Thi, nearly 10,000 apartments in Hanoi are also standing unsold also because people cannot afford them, Duc said.

In response to concerns expressed by the experts, Dung said the purchases will be made at market prices and through bidding under the watch of government agencies to make sure they are undertaken transparently.

Nguyen Manh Ha, director of the Construction Ministry's Housing and Real Estate Market Management Department, also said that a circular on bidding procedures will be issued to guarantee that the bidding is open, transparent and fair.

According to Dung, the ministry would establish a housing purchasing council that would decide "reasonable prices" as a base from which bidders would be chosen.

Under the draft decree, buying prices will be identified based on construction costs and other legal costs with businesses' profit accounting for 10-15 percent.

Relocated people can rent resettlement houses bought from commercial housing projects in case they cannot afford to buy them, it says.

Asked if the profit margin that the ministry planned to reserve for businesses would sharply increase prices of resettlement houses, given that commercial housing are normally priced very high,  Dung told Saigon Tiep Thi that the ministry's plans need to guarantee the benefits of the government, businesses and people.

Thus, "it can't be said that the houses' prices are high or low in this case," he said.

Moreover, the prices of commercial housings are actually decreasing to deal with the current stockpile, he said, denying the possibility that the ministry's plan would boost the prices.

However, the ministry so far has not made clear how the move could provide affordable housing to resettlers, most of them low-income people.

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