Property Market Troubleshooting: Policy Effects

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The real estate market is positively changing in the fourth quarter of 2013, with more deals being reached, particularly in the midrange segment. This shows that the solutions and policies adopted by the Government of Vietnam to solve difficulties for the real estate market have started to take effect. Besides, with fundamentals changes, the amended Construction Law, which is being reviewed by the lawmaking National Assembly, is expected to give a boost to the market.

Bringing products to their true value

The real estate market began to slow down in late 2010 and the hardships seemed to peak after two years of slump. Prices plunged steeply in all segments, from budget to luxury. In some projects, prices have dropped almost 60 percent from their peak and sell-offs became mainstream in the market. Now the market is becoming more stable, prices are not falling sharply and a sideways trend is taking shape.

Construction Minister Trinh Dinh Dung said the real estate market has shown positive signs in recent months. Deals increased in affordable housing segment. According to some agents, the supply in this segment is even falling short.

However, he admitted that the property market will be still in difficulty on adverse economic impacts.

The strong slump has exposed plenty of market weaknesses which were hardly recognised in the previous time. When the property market was developing, prices shot up far above true value. Therefore, when the economy was in trouble and directly impacted the market, property prices plummeted as a result and current real estate prices are being brought to their real value.

In addition to sale promotion programmes which aimed to boost demand, investors must also reduce unnecessary costs, replacing high-grade materials with domestic products. Condominium services are also reduced from initial investment requirements.

Supporting buyers

Determined to revitalise the property market and gradually revive the economy, since early 2013, the Government has adopted and deployed a VND30 trillion support package, featuring a preferential interest rate of only 6 percent per annum, for selective homebuyers. Of the sum, VND20 trillion will be lent to low-income people to buy homes. This luck has come to many buyers, but slow disbursement of this preferential credit package has produced below-expectation results.

According to Minister Dung, to quicken the disbursement progress, the market must have more social housing or commercial houses with selling prices below VND15 million per square metre and a floor area of under 70 square metres.

Housing demand remains huge, especially for the affordable housing segment. According to estimates, the country currently needs about one million apartments. Hanoi and Ho Chi Minh City particularly need 130,000 units and 115,000 units, respectively. Minister Dung said the National Housing Strategy was just deployed and social housing development is truly a long process.

Meanwhile, developers remain primarily focused on the upscale segment, which produced greater margins than the low-end segments. Besides, the current procedure for borrowing from the VND30-trillion package is so complicated that many abandon their effort.

In this regard, Minister Dung said they should not use necessarily tight procedures as the pretext for slow disbursement of this fund. For that reason, people must be supported if they are in need and qualified.

To solve this issue, the Ministry of Construction needs to coordinate with banks and localities to minimise unnecessary procedures and support people to confirm their purchase conditions in the most favourable way.

Adjusting management level

In 2013, the construction industry also established the legal framework for all fields of construction activities, including Decree 11 on urban management and development, Decree 15 on construction quality management, and the draft amended Construction Law.

Minister Dung also admitted that, despite positive results, the construction sector has yet to address a current burning problem: Loss and waste in construction.

This is evidenced by inappropriate supply – demand balances among real estate segments. Ineffective investments have resulted in huge debts for developers.

The minister attributed these shortcomings to low-quality, unsuitable planning and ineffective State management over construction activities, from investment preparation to takeover and transfer.

Luong Tuan

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