A deluge of development has left Vietnam swimming in apartments no one can afford
Workers at a construction site in downtown Ho Chi Minh City. Supply will increase on the local real estate and experts say this can put more pressure on prices.
The real estate market, especially the high-end aparment segment, has hit a rough spot recently as prices remain high in the face of abundant supply.
The actual demand for luxury property is very low, at the moment. Many developers have had to cut their prices and begin offering lots of perks to attract buyers. Despite these efforts, sales have sagged, according to Nguyen Manh Ha, director of the Construction Ministry's Housing and Real Estate Market Management Department.
"This month only two people bought apartments," said Nguyen Thu Ha, a salesperson from a real estate exchange center in Khuat Duy Tien Street in Hanoi. "Most people come here to check prices only."
Many real estate exchange centers in the area are seeing the same situation, she said. Despite the slow trade, property prices remain beyond the financial grasp of many customers she explained.
In Ho Chi Minh City, only 14 percent of the luxury apartment supply was sold in the first eight months of this year. Meanwhile agents sold off 17 percent of midrange and 20 percent of low-end apartments, according to a recent survey conducted by the market research firm Cushman & Wakefield Vietnam.
The primary apartment market in Hanoi was generally not very vibrant in the second quarter. Only 670 units were sold, accounting for 48 percent of the primary supply, said Savills Vietnam, a UK-based research firm.
Hugo Slade, deputy director of Cushman & Wakefield Vietnam, attributed the stagnation to high real estate prices and high interest rates. Complicated borrowing procedures remain a major obstacle for those who cannot afford the inflated prices.
The price of luxury apartments stands at US$2,350-2,870 per square meter, while mid-range and low-end flats sell for $1,460- 1,860; and $780-810, respectively, according to the survey.
Nguyen Van Minh, general secretary of the Vietnam Property Association said the real estate market in Hanoi and some neighboring areas was very hot, when the National Assembly discussed the Hanoi zoning plan some months ago. Because the plan has still not been approved, the market has reverted to its previous state.
A supply surplus has only exacerbated the situation. According to the Ministry of Construction, 2,500 apartment projects are currently underway nationwide, including 800 in Hanoi, and 1,400 in Ho Chi Minh City.
A recent report from Savills Vietnam said there were 11,200 apartments available for sale in the southern city's primary market in the second quarter, an increase of 24 percent compared to the first quarter. The company said about 28,500 apartments that are currently in the works will be completed between 2010 to 2012. An estimated 5,800 apartments will become available in the second half of 2010.
Minh from the property association, said the government has facilitated the construction of low-income apartments, and many projects have been implemented. Thus, many apartments will become available for sale by the end of this year.
The real estate consulting firm CB Richard Ellis, sales of mid-range and affordable development will continue to flourish in the coming months.
According to the Ho Chi Minh City Real Estate Association, mid-range housing will be the key real estate product both this year and the next. Housing products priced between VND12- 15 million per square meter will grow the most because both homebuyers and investors can afford them.