Construction of the Kenton Residences apartment building project in Ho Chi Minh City has been halted since 2011 after the property market froze up
Housing prices must go down to unfreeze the prolonged real estate slump in Ho Chi Minh City, according to local analysts.
Developer Tai Nguyen halted construction of its US$300-million Kenton Residences in District 7 in 2011, two years after HCMC's property market froze up.
The hundreds of lofts in District 6's high-end 28-story Richland Emerald Tower, whose prices will start at $1,120 per square meter when they are finished, have been attracting very few customers since they hit the market three years ago.
Other projects like Song Da Riverside in Thu Duc District, Ngoc Dong Duong in Binh Tan, and Royal Tower in District 7 are also struggling to attract buyers.
Due to low sales, developer Quoc Cuong Gia Lai is seeking government permission to reclassify its 6B project in Nha Be District from commercial to social housing with an average price of VND12 million ($570) per square meter compared to the earlier VND19 million ($900).
According to a recent report by the HCMC People's Committee, of the total 1,386 real estate projects in the city, 712 have been halted and 85 others canceled amid the downturn.
If the halted projects, which measure an estimated 7,253 hectares in total, are priced at an average of VND5 million per square meter, then investment capital stuck in the industry amounts to VND362.65 trillion ($17.2 billion).
A senior official from the committee, who asked not to be named, said there have been no effective solutions to the huge inventory, which he called an "extremely serious" consequence of a red-hot property bubble that burst.
Consumption remains low but prices remain high due to high input costs, of which site clearance and land-use fees often account for up to 40 percent, he said, warning that such costs are in fact increasing.
The bank-land web
The official said regulations stipulating land fees to be paid over time prompts businesses to borrow money from banks.
He pointed out the correlation between the housing and banking sectors, with the latter also currently slumping due to high bad debt levels.
Besides deposits from customers, bank loans are a source of capital for developers to carry out their projects. He said a credit squeeze and high interest rates - which are banks' solution to the banking downturn - have resulted in many halted property projects.
Le Hoang Chau, chairman of the HCMC Real Estate Association, expressed the same concern about cost structures.
He feared that housing prices, despite having been cut many times by companies desperate to boost sales, are still out of home buyers' reach.
Low-income earners account for most of the demand for housing while high-end housing units make up a great deal of the inventory, he said.
When the going gets tough"¦
Nguyen Van Duc, deputy director of real estate firm Dat Lanh, hoped regulations on building commercial housing could be changed to cut input costs by 10-20 percent.
Prices in that case would decline to VND11-12 million per square meter on average, he said.
According to property service firm Savills, prices in the country as of the first quarter this year had declined by 22 percent on average from the start of 2009.
But Alan Phan, chairman of Hong Kong's investment fund Viasa, suggested a further decrease of 30-50 percent to revive the industry.
Firms profited when the market was hot some years ago, now they should accept the difficulties and make a move amid the tough time, he said.
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