How to reduce apartment prices to match real housing needs?

Apartment prices have been increasing steadily over the years.

According to the Vietnam Association of Realtors (VARS), the rapid economic development and urbanization have led to a surge in demand for housing while land funds are gradually depleted and housing supply is continuously decreasing due to slow project implementation due to policies related to capital sources and decisions of agencies and departments in controlling the real estate market.

Real Estate - How to reduce apartment prices to match real housing needs? — *The value of urban land has increased as infrastructure and public services have been upgraded, pushing apartment prices to continuously set new levels over the past many years.*

Resonance with the increased value of urban land when infrastructure and public services are upgraded has pushed apartment prices to continuously set new levels over the past many years.

According to VARS research data, the apartment price index in Hanoi in 2023 increased by about 38 percentage points compared to 2019, while in Ho Chi Minh City it was 16 percentage points.

In particular, the apartment price index is one of the indexes in the Real Estate Price Index Project that VARS is researching to reflect the fluctuations of real estate prices under the influence of market movements over time.

Specifically, apartment prices in Hanoi have been continuously increasing in both the primary and secondary markets. Meanwhile, apartment prices in Ho Chi Minh City have also begun to enter a cycle of price increases again, along with a gradual decline in high-end, luxury projects in the secondary market.

Statistics from Batdongsan.com.vn show that the level of interest in apartments for sale nationwide in January 2024 increased by 66% compared to the same period in 2023, the number of real estate listings also increased by 46%. Specifically, the number of searches for apartments in January 2024 in Hanoi increased by 71% compared to the same period. Similarly, in Ho Chi Minh City, the demand for apartments also increased by 59%. This trend is similar in most other provinces and cities.

Real Estate - How to reduce apartment prices to match real housing needs? (Figure 2). — Statistics from Batdongsan.com.vn, the level of interest in apartments for sale nationwide in January 2024 increased by 66% compared to the same period in 2023, the number of real estate listings also increased by 46%.

Despite the strong increase in homebuyer demand, apartment supply is still growing disproportionately. Apartment supply in 2023 recorded a decrease in both Hanoi and Ho Chi Minh City markets.

In Hanoi, the supply of new apartments in 2023 is estimated at 10,500 units, down about 31% compared to the previous year. In Ho Chi Minh City, the supply of new apartments is estimated at nearly 7,500 units, down more than 50% compared to the same period in 2022.

The supply of apartments has decreased in recent times due to the increasingly scarce number of newly approved real estate projects while ongoing projects are "struggling" due to legal and capital problems. Although the efforts of the Government, ministries and branches to overcome difficulties have achieved some remarkable results, the number of projects implemented and restarted in 2023 has increased sharply, but the cash flow pressure has not yet eased for real estate businesses.

Removing difficulties for investors in social housing projects to reduce apartment prices

Accordingly, the situation of capital mobilization through corporate bond issuance has gradually improved since mid-2023 thanks to the efforts of State management agencies.

Real estate - How to reduce apartment prices to match real housing needs? (Figure 3). — New regulations aimed at removing difficulties for investors and social housing buyers have officially come into effect, reducing apartment prices to a level suitable for people with real housing needs.

However, the pressure of bond maturity remains a challenge for businesses in 2024, especially real estate businesses, with nearly VND115.7 trillion of real estate corporate bonds maturing, accounting for 41.4% of the total value of corporate bonds due this year, according to the latest data from the Vietnam Bond Market Association (VBMA).

Issuance activities in the first months of 2024 have also begun to face barriers due to more difficult conditions for bond issuance and trading such as regulations on professional securities investors and mandatory credit rating regulations when Decree 65/2022/ND-CP is re-implemented from the beginning of 2024 after a period of extension and postponement according to Decree 08/2023/ND-CP. However, this is only a short-term difficulty; in the long term, the implementation of Decree 65 will help the corporate bond market develop more healthily.

Regarding credit capital, outstanding credit for real estate business activities has continuously increased thanks to solutions from the banking sector, the Government and relevant agencies to remove difficulties for projects.

However, consumer credit and real estate loans in the first months of 2024 continued to decline from 2023, although lending interest rates remained low. Because inflation and interest rate fluctuations are still unpredictable, borrowing money to buy a house and paying monthly debts of over 10 million VND has become a burden for many families, when they are not really confident in their future job and income situation.

However, after Tet, home purchase credit increased slightly at some commercial banks with diverse real estate ecosystems, as people began to invest again.

After a long period of decline, the supply of apartments in both special urban areas is also expected to increase again thanks to the recovery of the market and efforts to remove legal obstacles for projects by State management agencies. Especially the supply of social housing and workers' housing. However, this supply needs time to complete legal procedures before being officially launched on the market and mainly comes from areas far from the center.

Therefore, VARS forecasts that in the short term, apartment prices in the center of major cities will continue to increase, especially in the affordable and mid-range segments. Meanwhile, the purchase and resale prices of high-end and luxury projects may record a slight decrease.

VARS expects that, along with the foundation of a series of positive factors of the current market, by mid-2025, when the new Laws related to the real estate sector are passed with new regulations towards removing difficulties for investors and buyers of social housing and housing for workers, it will officially take effect.

Social housing supply will increase, apartment prices will drop to a level more suitable for people with real housing needs.

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