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Real estate market expected to recover soon
Decreasing construction material prices, increasing bank loans and decreasing bank interest rates all are believed will help heat up the real estate market.
Experts have forecast that the construction market growth rate will be minus 0.8-1% this year. However, they have also predicted that the gloomiest period of the market is over.
Rushing to complete construction works
In previous years, construction material prices always increased sharply in the last months of years, in the high construction season. However, the situation is quite different this year: construction material prices are decreasing.
The dramatic construction material price increases several months ago afflicted contractors. A lot of construction works were delayed as the contractors incurred heavy losses while they could not borrow money from banks.
The prices of bricks increased three times within one year, from VND380-420/brick to VND1,200; steel surged by VND19,000/kg, while labour costs by 35-40%.
Therefore, it is now the right time for contractors to speed up construction works to take full advantage of the construction material price decreases.
Tran Chien Thang, a sub-contractor for the Hanoi Urban Development Corporation, said that from the end of 2007 to mid 2008, contractors insisted on delaying the construction process due to the overly high construction material prices and labour costs. Meanwhile, they are now hurrying to complete projects to get money to offset the losses they have been suffering for the last year.
The construction material price decreases have led to project construction cost decreases. The construction price of the project on Van Phu new urban area invested in by Quang Ninh Housing Trade Company has been lowered two times in the past month. The contract signed by the investor and contractor stipulated that if one of the three main materials, steel, bricks and cement, increased or decreased by 10%, the two sides would adjust construction prices accordingly.
As such, the construction price was lowered from VND3.1mil/sq m to VND2.886mil/sq m, and then to VND2.638mil/sq m in October.
Real estate market expected to recover soon
Nguyen Quoc Hiep, Deputy Chairman of the Contractors’ Association, believes that the real estate market will recover by the end of 2009 before reaching its peak by 2010.
Hiep said that all factors now prove to support the real estate market: commercial banks have announced the resumption of real estate loaning, while construction material prices are decreasing. If lending interest rates decrease to 17-18% as forecast, contractors will speed up construction, thus helping the real estate market bounce back.
Le Dac Son, General Director of VP bank, also predicted that the real estate market would heat up after 10 months of freezing thanks to softer interest rates, which will help stimulate demand.
In fact, contractors want to complete projects as soon as possible also because they anticipate that input material prices will increase again. The government may allow increases of the prices of electricity, coal and water as of January 1, 2009, which would lead to commodity price increases.
VNN
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