Mission impossible: housing at $95 per square meter

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Target rate possible only if government covers infrastructure development, site clearance

 
A farmer rides amid smoke from burning rice straw in a paddy field in front of a new township in Sai Dong Village outside Hanoi. There are several low-cost housing projects in Hanoi but prices are still too high for poor people to afford. Photo: Reuters

Property developers say the government's suggestion to cut home prices for low-income earners to below VND4 million per square meter is too ambitious since the price can barely cover construction costs.

They say prices will never be able to fall to that level unless they are given land for free.

Prime Minister Nguyen Tan Dung said at a conference last week that apartments for low income earners should be sold at VND2-4 million (US$95-190) per sq.m.

That means a medium-sized apartment will cost just VND200 million, one-fifth the rate at which many mid-range apartments are being offered.

Nguyen Xuan Quang, chairman of Nam Long Investment Corp., a developer of mid-market housing projects, said there are so many costs to cover, including those for planning, buying land, site clearance and building.

Developers will only have enough money to pay for construction works if they really have to lower prices to VND4 million per sq.m, he said.

The call to slash home prices came amid a prolonged market slump, which has seen developers struggling to clear their huge inventory of expensive houses that used to be a hot sell just three years ago.

Plenty of blame has gone around: developers have complained that the government squeezed credit policy too tight last year while officials have criticized property firms for pursuing rich customers and failing to tap the real high demand in the low-end segment.

Dang Hung Vo, a former Deputy Minister of Natural Resources and Environment, said businesses are generally not interested in low-cost housing. The government, therefore, needs to support them if it wants to cut prices to as low as VND2 million per sq.m.

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Also, the government does not have to depend on private developers and can launch its own non-profit projects, he added.

Nguyen Van Duc, vice chairman of the Ho Chi Minh City Real Estate Association, said the construction cost for one sq.m. of housing is estimated at VND3 million, so selling at VND4 million can bring enough profit for developers. However, if the project has more than five stories, the cost can hit VND5 million per sq.m. due to the installment of elevators and more complicated fire protection systems.

The suggested price is only possible if the government takes care of infrastructure development and site clearance first before giving the land to property firms, Duc said.

Land prices in urban areas are now too high, so low-cost residential projects have to be built in outlying areas. In order to attract residents to these projects, the government needs to improve roads and public transport and build more schools, hospitals and markets, he said.

Quang of Nam Long agreed that developers should not be the only one's tasked with low-cost housing.

Developing large scale townships with government support will help businesses reduce construction costs and bring down home prices, he said.

Binh Duong, a province next to Ho Chi Minh City that is famous for its fast urbanization pace, is following that model.

Becamex Infrastructure Development JSC has started construction of 5,000 small apartments in three emerging townships in the province. Prices of the 30-square meter units are expected to be around VND3 million per sq.m.

General Director Nguyen Van Hung said the company will build a total of 64,000 apartments by 2015 for low-income earners who cannot afford a house in central urban areas.

Hung said the developer is able to keep prices so low because it only needs to handle construction, all other land and infrastructure costs covered by the authorities. The company is also applying new construction technology that uses cheaper and lighter materials, he added.

In Hanoi and Ho Chi Minh City, where property prices are among the highest in Asia, it is not easy for developers to slash prices.

Nguyen Quoc Tuan, deputy director of Hanoi Construction Department, said there have been several low-cost residential projects in Hanoi but prices are at least VND7.2 million per sq.m. Apartments at high-rise buildings of around 15 stories are even more expensive, selling at around VND9.8 million per sq.m.

Tuan said these prices are reasonable and cannot be cut further. "There have been so many things to pay for"¦ and to reach that price level the city already considered everything carefully."

It is unlikely that prices can be cut to VND2-4 million in big cities, he said, unless the government subsidizes all the land-related costs. Then developers have to be assisted in accessing cheap loans and applying new construction technology to minimize expenditures.

High land prices have made so-called low-cost apartments in Hanoi too expensive for the poor. A number of illegal trading cases were discovered last year in which speculators bought the apartments and sold them to well-off homebuyers.

Deputy Construction Minister Nguyen Tran Nam told news website VnExpress Tuesday that the government may subsidize land costs to lower home prices but such a policy is not an easy one to put into practice.

Land prices in some areas of Hanoi, for instance, can be as high as VND500 million per sq.m., which means the government will have to give out huge subsidies to offer free land for residents in urban low-cost housing projects. That would not be fair to people in rural areas, he said.

It is more practical to build low-income housing in suburban areas, he added.

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