Apartment buildings under construction along a street in Ho Chi Minh City
Economists and industry insiders have criticized plans by the Ministry of Construction to stop licensing new commercial and urban housing projects as part of its efforts to simulate the property market, saying it violates the law of demand and supply, and smacks of favoritism.
Minister of Construction Trinh Dinh Dung has made the recommendation to the government even as large housing inventories remain amid a lack of demand. Provinces seeking exemptions for some special cases should clear them with his ministry first, he said.
Pham Sy Liem, deputy chairman of the Vietnam Construction Federation, said: “This is an unreasonable proposal made by those with a poor understanding of the property market.
“In general, the market is in difficulty due to oversupply, but not in all localities.”
In some big cities the property market may be frozen, but it is still robust in other places, he said, pointing to Phu Quoc Island, which has potential for development of resorts and villas for lease, and Binh Duong Province, where there is high demand for housing from workers and others.
“Thus, there is no reason to stop licensing new housing projects in these localities.
“The mechanical implementation of the proposal will undermine the market’s development.”
In Hanoi there is an oversupply of high-end housing but a shortage of low-priced ones, and if the government does not license new projects, middle-income people would have little chance to buy housing, he said.
“We should let the market regulate itself based on supply and demand.”
Nguyen Van Duc, deputy director of property firm Dat Lanh, concurred with Liem, saying a ban on new projects would violate the principle of market competition.
Firms could suspect that the ministry is seeking to protect certain developers with large stockpiles, he said.
“Investors should take responsibility for their wrong investment decision. Banning new products runs counter to the market’s competition principle.”
If the proposal is approved, property firms would have to change their business strategies and plans, which could affect their workers and the construction materials industry, he said.
“The government should not ban new projects just because of low demand. The Ministry of Construction could warn firms not to invest in certain segments, not ban them.
“The ministry said the property market is recovering. Why does it not want to license new projects?”
Liem said banning new projects would not help reduce the inventory by much since most people could only afford apartments costing less than VND1 billion, but those in the market are mainly priced at VND2-3 billion (US$95,200-142,800) upwards.
“So I do not think the measure will help resolve the situation.”
The ministry has also urged the government to instruct localities to review all property projects and order their developers to temporarily use lands for other purposes if they do not comply with local development plans. Those that have acquired and cleared sites could be allowed to use the project sites for business activities, it said.
“It is necessary to temporarily halt projects that are not in line with the development plans and needs of localities,” Dung said.
As of last December there were 4,015 approved property projects with a total investment of VND4.5 quadrillion ($214.3 billion).
Signs of recovery
The stagnant property market is showing signs of bouncing back with the number of transactions and prices increasing after many years.
According to the ministry, housing prices, after years of sharp falls, have increased slightly. Prices at projects in Hanoi’s Tu Liem, Ha Dong, and Co Nhue have increased by 1-2 percent.
In Hanoi there were nearly 1,300 transactions in February, twice the number from a year earlier, said the ministry.
Deputy Minister of Construction Nguyen Tran Nam said the market is beginning to recover and stabilize.
He said inventories in Ho Chi Minh City have fallen by 45 percent this year following a drop in prices.
To help the market recover more strongly and speed up disbursement of the VND30 trillion ($1.43 billion) loan package, the ministry has suggested that conditions for lending should be eased.
The package, unveiled last June, was expected to revive the market, but only VND1.32 trillion had been disbursed as of March 15, the ministry said.
It has called for scrapping the condition on the size of apartments to qualify for a loan.
Borrowers are offered loans at 6 percent interest for 10 years to buy apartments measuring less than 70 square meters and costing no more than VND15 million per square meter.
Low-income earners, government workers, and military personnel who do not own a house or own housing measuring less than 8 sq.m per member of the household are eligible for the loans.
The stipulations on size and price per square meter should be scrapped, the ministry said, and instead the cost of the apartment should be capped at VND1.05 billion.
Liem said the strong demand for low- and mid-priced apartments could drive a market recovery, adding the segments have great potential.
Le Hoang Chau, economist and chairman of the Ho Chi Minh City Real Estate Association, said gold and stock prices, especially of property stocks, have been going up recently, which means people are spending money.
“The property market could warm up.”
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