New apartment blocks being built in Hanoi. Although home prices are still low, there are positive signals for a market rebound, property firm CBRE said.
Unable to compete with the hundreds of other people who were jostling to buy units at an apartment block in Hanoi's Thanh Tri District last month, Nguyen Thi Thu had to buy one from a property agent by paying VND25 million (US$1,190) extra.
"The supply of apartments in the market is huge, but their prices are very high, beyond the financial capacity of government workers like me," Thu, 29, a primary school teacher said.
"There are only a few projects at reasonable prices like this. So I was determined to buy an apartment."
At some VND14 million per square meter, the units, measuring 40-66 square meters, are highly appealing, creating a scramble to buy even amid the deep slump in many other segments.
Like Thu, many others are willing to buy from agents by paying VND15-30 million extra.
Pham Sy Liem, vice chairman of the Vietnam Construction Federation, said: "Despite the sluggish market, demand for apartments of 50-60 sq.m. and costing reasonable prices is huge. Supply of the product is limited, much lower than the demand.
"Obviously, there will be speculators, who make use of the situation to earn money, while many customers are willing to pay more for the apartments."
Industry insiders point to a paradox in the property market: there is big demand for low-priced small apartments, but developers are focused mainly on high-end products of large size.
"The structure of products is not in line with the demand, causing low liquidity despite the ample supply," said Nguyen Duy Chinh, director of property firm The Win.
"Most local people can only afford apartments costing less than VND1 billion, but the products in the market are mainly priced at VND2-3 billion."
Explaining the paradox, Nguyen Huu Cuong, chairman of the Hanoi Property Club, said investors have bought well-located land lots at very high prices in cities, and so are building luxury apartments.
Liem said the strong demand for low- and mid-priced apartments may be a driving force for a property market recovery this year, and the segments have great potential.
However, developers should carefully consider many factors, including those related to infrastructure and environment, he said. Meanwhile, they find it hard to sell apartments costing VND2 billion and more, with tens of thousands of units remaining unmarketable.
This is contrary to the situation a few years ago when people in Hanoi queued at midnight to buy high-end apartments in projects that had not even broken ground yet.
At that time, with inflation looming, many people thought that investing in property was the quickest and easiest way to get returns. At trading floors, supply could not match demand.
Most real estate projects around the country then were in the luxury segment, with customers mainly being speculators, Liem said.
Recover at slow pace
Commercial banks have cut interest rates and hope to expand credit to home buyers and developers after the central bank decided to loosen lending to the sector.
An Asia Commercial Bank executive said the bank has cut rates on home loans for the fourth time this year to as low as 15.5 percent.
Other bankers also said interest rates on loans to the property sector have been falling rapidly in recent times, easing to 13-15.5 percent.
Chinh said: "The loosened credit policy has had a positive impact on the real estate market. It has contributed to lowering property prices. I think now is the right time for medium-income people with real demand to buy houses."
Dang Hung Vo, a former deputy minister of natural resources and environment, said the fall in rates has an impact on customers' psychology, and this would help improve liquidity.
The market would recover this year and stabilize, and not see bubbles unlike in the past, he said.
Minister of Construction Trinh Dinh Dung said the real estate market has bottomed and is now picking up, though at a slow pace.
"The market will continue to face many difficulties this year, but in the medium and long term, it will get better, meeting the housing demand of people and contributing to economic growth."
According to a recent report by property firm CBRE, there are positive signals for a market rebound.
Buying interest seems to be returning, with the number of inquiries increasing, it said.
"Real estate becomes more attractive as interest rates decline. Mortgages are now back to the pre-crisis level of 15 percent in 2010 from their peak of 23 percent in mid-2011.
"However, it is not conclusive that the market will soon pick up since the future direction of the economy remains uncertain.
"Developers should remain watchful of the market to enjoy first mover advantage."
Bui Kien Thanh, an economist, pointed out however, that there are still issues: many developers are unable to borrow from banks since they already have huge loans and not enough assets to mortgage for new loans.
Besides, they have to repay existing loans to get new ones, he said, and liquidity is very tight now.
Ease regulations for expats
Industry insiders said many real estate companies have cut their prices to spur sales. CBRE said primary prices remained at a low level in the second quarter, with all newly-launched units priced at below $1,500, half of them at less than $1,000.
In the secondary market, prices saw the largest quarter-on-quarter drop since it began falling in second quarter last year.
But Thanh said the prices are not low enough. Despite the fall, home prices remain much higher than the income levels of many Vietnamese, he said.
The Ho Chi Minh City Real Estate Association has recently called for urgent support from the government to revive the market, requesting tax relief and easing of home ownership regulations for foreigners.
The industry feels current regulations on foreigners buying or selling property are too strict. They are allowed to own apartments but not houses, and each foreigner is only allowed to own one apartment.
Besides, many foreigners complain that procedures for buying or selling a house in Vietnam are too cumbersome. They find it very difficult to demonstrate that they meet all the criteria required to buy property in the country.
Under a resolution allowing foreigners to own apartments in Vietnam, which took effect in 2009, five categories of foreign individuals and organizations are eligible to own houses.
They include individuals who invest directly in Vietnam or who are hired in management positions by local or foreign-invested companies in the country; foreigners who receive certificates of merit or medals from the president or government for their contributions to the country; foreigners who work in socioeconomic fields, hold a bachelor's degree or higher, and who possess special knowledge and skills that Vietnam needs; foreigners who are married to Vietnamese nationals; and foreign-invested enterprises operating in Vietnam that need to buy houses for their employees.
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