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Speculation drives ‘low cost’ home prices beyond the reach of poor
In HCMC, real estate developers are preparing with considerable fanfare to put a lot of ‘low-cost apartments’ (VND 350 to 500 million) on the market. However, low-income people will not be able to afford the apartments, because speculators have already driven up their price.
Intended buyers unable to qualify for loans
The Le Thanh Real Estate Company has recently delivered to buyers 134 apartments, the first part of a 1154 unit high rise project that it has developed in Binh Tan district, HCM City. Intended for low and middle income earners, the 50 to 81 square meter flats were priced at six million VND per square meter, a level considered ‘soft’ in current circumstances. That explains why all the apartments on offer were sold immediately after they were open for sale.
However, says Le Huu Nghia, Director of Le Thanh Real Estate Company, these apartments are re-selling on the market for 1.5 times the original price. This shows that the people who purchased the apartments are speculators, and that they did not intend to live in the apartments.
According to Nghia, when building the apartment block, the Le Thanh Company targeted those who have medium income, officials, company staff, recent college graduates, and recent arrivals to the city. However, Nghia admitted, people like that have not been able to buy the apartments. Buyers have to make a large cash payment, VND350 to 400 million, to be able to buy the apartments or, if they purchase the apartments by instalment, they have to pay 30% of the value in advance (VND100mil). Further, they need to show that their monthly income is high enough to make the monthly payments, a mark only high income earners can meet.
For example, before they will make a mortgage loan for the purchase of an apartment worth VND400 million, banks require buyers to have to have a stable income of VND10mil/month or more – a sum beyond the reach of the target customers.
Besides Le Thanh Real Estate, the Hoa Binh Real Estate Company is bringing to market some 500 units in five story apartment blocks in HCMC’s Nha Be District. The apartments are priced at VND5-6 milion per square meter, or VND250-300 each. Dat Lanh Real Estate Company has also announced development of several projects for apartments in the VND500 milllion range. It sees good potential for sales to lower income buyers, who are some 70-80 percent of the market. But the truth is, nearly all the apartments intended for this group have recently been snapped up by high income buyers!
Low-cost apartments turning out high-price apartments
Le Huu Duy, Director of Hoa Binh Real Estate Company, says real estate developers have to pay VND1-2 million per square meter for land, VND4 million per square meter in construction costs, plus design costs and management overhead. To make apartments affordable for low income earners, real estate companies develop projects in the areas in suburbs like Nha Be, Binh Chanh and Hoc Mon, where land is relatively cheap. Meanwhile, if they can afford to, people prefer to purchase land to build houses of their own rather than purchase apartments located far from the centre of the city.
Director Nguyen Van Duc of Dat Lanh Real Estate said ruefully “Buyers now have to purchase high price, low quality flats.” When asked why real estate companies still try to develop low-cost projects, Duc said that maybe the companies aim to polish their image. However, he explained, even though construction material prices have been decreasing, the average construction budget of VND5-6 million per square meter is not high enough to ensure the quality of the work.
Ca Hao
vietnamnet
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