Need to harmonize the interests of all parties

Investors struggle to "bear" costs and pay interest on loans

Nguoi Dua Tin (NDT): Currently, while millions of low- and middle-income people aspire to own a home, the supply of affordable housing and social housing is almost exhausted. What do you think is the cause of this situation?

Mr. Vo Hong Thang - Director of Consulting Services and Project Development, DKRA Group: The problem of lack of affordable housing supply and social housing to meet the needs of low-income and middle-income people has occurred and lasted for many years.

There are many factors that affect this segment, but there are two main factors that directly affect the supply of this segment.

Firstly, input costs are high. Although real estate prices have shown signs of decreasing in the past two years, it must be admitted that the previous real estate development cycle from around 2014-2020 caused housing prices to remain high.

This leads to extremely expensive investment and construction costs for real estate project investors. From land purchases, raw materials, labor, etc. all increasing vertically, it is very difficult to reduce the price of finished real estate.

Mr. Vo Hong Thang - Director of Consulting Services and Project Development, DKRA Group.

Second, the legal status of real estate projects is prolonged and takes a long time to resolve. From the land ownership stage, investors must also apply for approval documents from various levels of government, not to mention the compensation and site clearance plan, causing the legal completion of a project to take many years.

Especially for specific businesses such as real estate, most of them use high financial leverage, borrowing from bond channels and banks is very large. While the project is delayed due to incomplete legal procedures, the business still has to "bear" a huge amount of interest from the loan. All of the above attachments will be included in the price of the product after completion.

Therefore, it is very difficult for businesses to lower product prices to a low level or to meet the concept of "affordability" as desired by the majority of people, especially in the current context when costs are already very high.

Investor: Saying that shows that real estate investors are having a “headache” with the cost problem. Could you please share more clearly some of the costs that real estate businesses are having to bear, how does this affect the reduction of house prices, sir?

Mr. Vo Hong Thang: Input costs such as land use fees, site clearance compensation, bank loan interest, labor costs, construction material purchases... have all increased sharply, even by several times in recent times.

A project from the time of construction policy to legal completion as expected takes only about 3 years on average, but in reality, businesses wanting to officially build can spend up to ten years on paperwork, wasting resources.

To own land, enterprises must pay a series of compensation and site clearance costs through receiving land use rights transfers, paying land use fees, land rent, and rice land protection fees to the State.

Next, construction costs from labor, materials, etc. increase over time. For apartment projects, construction costs account for approximately 50%, about 30% for townhouses and 20% for villas.

Not to mention the financial burden when businesses have to pay principal and interest on loans. The longer the project takes to complete, the higher this financial cost will be. And finally, this cost is included in the selling price that customers have to pay when buying a house.

It is impossible for businesses to accept losses just to push their products out.

In the context of the gloomy real estate market in the past two years, many investors have tried to offer attractive incentives to home buyers and extend payment periods to stimulate demand.

In fact, this is a policy that damages the investor's profits, but they still accept it to try to create liquidity. Now that the cost is too high, businesses can only lower the price of their products to harmonize the interests of both buyers and sellers at a moderate level.

It is very difficult to force real estate businesses to lower house prices to an "affordable" level because business needs to make a profit. It is impossible to expect businesses to accept losses just to sell their products.

In the past, many investors expected profits of up to tens of percent before doing anything, but now they are determined to break even, even lose money in some early stages. The highest goal of investors today is to sell at the lowest possible price, collect money as quickly as possible to create cash flow, which is the best option for customers who want to own real estate.

Expectations of increased housing supply thanks to policy

Investor: The reality shows that even in the general gloomy context of the real estate market in 2023, the affordable housing segment still receives special attention from customers and projects in this segment always have stable transaction volume.

However, investors seem to be interested in developing luxury townhouses and high-end apartments.... Why do you think this paradox has appeared?

Mr. Vo Hong Thang: The legal deadlock that occurred simultaneously in thousands of projects across the country has resulted in very few projects eligible to launch in recent years, only in certain segments.

Due to the small number of projects with reasonable prices, the sales speed will certainly be very fast, and the bustling transactions make us easily mistakenly think that only low-cost projects are of interest to people.

However, it is also necessary to recognize the fact that for projects located in "hot spots" such as Hanoi and Ho Chi Minh City, the number of apartments priced under 50 million VND/m2 is almost non-existent. The above projects will all cost 70-80 million VND/m2, even 100 million VND/m2, also known as luxury real estate.

All of the above projects are located in such prime locations, so it is very difficult for investors to reduce product prices. And especially in recent times, the number of luxury projects eligible for launch is also very scarce, which also makes the transaction volume of this segment low.

Therefore, it is impossible to look at the number of transactions in the market to confirm that the luxury real estate segment is less interested than the affordable or social housing segment.

If costs are reduced, real estate prices will immediately drop.

In addition, for some investors, many businesses have positioned themselves from the beginning to develop the townhouse and high-value house segment and have a long-term strategy to develop this segment, so even though they really want to develop more lower-value segments to meet market demand, they still have to accept pursuing the original orientation.

Along with that, some projects have been implemented unfinished with very high capital investment, so it is difficult for investors to easily switch to other real estate segments.

Investor: So, in your opinion, what solutions need to be implemented to solve the problem of the lack of affordable housing supply? The revised Land Law has been passed and will be applied in practice. How do you assess this will impact the supply in the real estate market?

Mr. Vo Hong Thang: Based on the State's major policies, we can completely expect that in the next 3-5 years, the supply of social housing and affordable housing will increase dramatically, making up for the shortage of housing needs of the majority of people in recent times.

To do this, the role of the State is still the most important, holding the key task of operating and orienting the development of the market through policies, institutions, and strategies...

The most important thing is to resolve all legal issues for the project, shortening the administrative procedure time so that businesses can quickly deploy construction. In particular, the newly amended and supplemented laws will certainly have an immediate positive impact on the supply in the market after being officially implemented.

Second, it is necessary to review land use costs and there should be more tax support programs for businesses developing affordable housing and social housing segments.

Third, Vietnam should consider establishing additional housing development funds for first-time home owners like Singapore.

And finally, in our country, we should create more clean land funds and auction them so that businesses can easily access land.

As for businesses, the nature is still the relationship of supply and demand. If input costs increase, the selling price will increase and vice versa. If costs are reduced, the price of finished real estate products will also immediately decrease. To control the above costs, the State still plays an important role in deciding the increase or decrease of the real estate market .

Source: https://www.nguoiduatin.vn/giai-con-khat-nha-gia-re-can-hai-hoa-loi-ich-cac-ben-a668701.html