How to resolve the paradox of difficult real estate market, but house prices remain high?

Recently, the Government Office issued a Notice of the Prime Minister's conclusion at the Conference "Solutions to remove difficulties in credit growth for production and business, promote growth and stabilize the macro economy".

In the announcement, the Prime Minister assigned the Ministry of Construction to closely monitor developments in the real estate market to promptly advise and propose appropriate and effective policies to promote market development.

At the same time, the Ministry of Construction is required to guide real estate businesses to restructure segments and reduce product prices. There are appropriate, timely and effective solutions to restructure segments for people with real needs, social housing, housing for workers and low-income people.

Paradox of difficult real estate market, house prices still increase sharply

Looking at the reality of the real estate market in recent times, talking to Nguoi Dua Tin, Mr. Nguyen Van Dinh - Vice President of the Vietnam Real Estate Association, President of the Vietnam Real Estate Brokers Association (VARS) stated the reality that in recent times, although the real estate market has faced many difficulties, real estate prices are still "anchored" at high prices.

Even the apartment segment in big cities still maintains its upward momentum, setting a new price level to a record high, far exceeding the income of the majority of people. In contrast to the decline in prices and liquidity of land products, villas, shophouses, townhouses, and townhouses.

Real Estate - How to resolve the paradox of a difficult real estate market but still high housing prices? — Mr. Nguyen Van Dinh - Vice President of Vietnam Real Estate Association, President of Vietnam Real Estate Brokers Association (VARS).

According to VARS data, real estate prices have increased dozens of times in the past 10 years. In 2021 alone, the average house price grew by double digits. Low interest rates and record high inflation are factors contributing to the sharp increase in house prices, but the core of the problem is the decline in supply.

Along with that, the demand for housing is constantly increasing, putting "pressure" on supply, pushing real estate prices to continuously establish new levels.

According to VARS estimates, each year Vietnam will have a shortage of about 300,000 housing units due to the emergence of new urban households, especially from the need to "live separately" of the young generation separating from extended families.

“This serious shortage will certainly push housing prices even higher,” Mr. Dinh predicted.

Real Estate - How to resolve the paradox of a difficult real estate market and still high housing prices? (Image 2). — Although the real estate market faces many difficulties, real estate prices are still "anchored" at high prices.

Also expressing his opinion on the above issue, citing statistics from the Institute for Business Development Research, Dr. Le Xuan Nghia - Director of the Institute for Business Development Research, Member of the National Financial and Monetary Policy Advisory Council said that in the past 2 decades, real estate prices have grown 4 times faster than the growth rate of gold prices. That shows that, in any context, real estate is always an attractive investment channel.

Sharing more, Mr. Nghia said that looking at the reality of Vietnam's real estate market, it can be seen that Vietnam is a market lacking supply, while demand is high in both the short and long term.

“The segment that needs a huge supply but does not have it is affordable housing and social housing due to lack of mechanisms, land, and capital. In the past 5 years, the licensing and implementation of projects has decreased sharply, especially in the last 2 years, there have been almost no new projects launched, leading to an increasingly scarce supply of residential real estate,” said Mr. Nghia.

Real Estate Downgrades: Where to Start?

Forecasting for 2024, VARS Chairman Nguyen Van Dinh said that real estate prices will continue to increase, especially in the apartment segment.

At the same time, Mr. Dinh also explained, “The high price of apartments is not only because investors try to keep prices high, but also because investment and construction costs have increased due to the increase in input material prices, labor costs, and financial access costs. In addition, the cost of creating land funds is too high, along with many “unnamed” costs arising when implementing initial investment, construction, and project development, making it difficult for investors to reduce prices.”

In addition, low interest rates and record high inflation of the previous period were also factors contributing to the sharp increase in house prices, but the core of the problem is still the decline in supply.

However, Mr. Dinh also noted that real estate is a highly localized product, real estate prices will increase at different rates in different regions and markets, mainly depending on the balance of supply and demand.

Accordingly, Mr. Nguyen Van Dinh said that in order to restructure the segment and reduce product costs, it is necessary to have "joint hands and contributions", unify viewpoints, implementation methods, and coordination of many subjects and components, from State management agencies to Enterprises and Banks.

In particular, the State needs to study and shorten administrative procedures on investment and construction, develop plans to calculate land use fees and site clearance to support businesses; the State Bank has additional credit programs with preferential interest rates for investors developing affordable housing and home buyers.

On the investor side, Mr. Dinh stated that businesses also need to proactively review their investment project portfolio, proactively restructure debt and plan cash flow, reduce profit expectations, even accept selling at a loss, use profits from previous years to maintain operations and proactively orient towards the affordable price segment to ensure absorption capacity when launching products to the market.

Real Estate - How to resolve the paradox of a difficult real estate market and still high housing prices? (Figure 3). — Dr. Le Xuan Nghia - Director of the Institute for Business Development Research, Member of the National Financial and Monetary Policy Advisory Council.

In addition, Dr. Le Xuan Nghia said that in the near future, if the real estate market has products with good legal procedures, projects with resources and reasonable prices, the demand will be very large.

Making a forecast, Mr. Nghia analyzed that the market could establish a new price level in the direction of continued growth. However, with the "support" from policies, Mr. Nghia expressed his hope that real estate prices will increase in a stable, healthy and "acceptable" direction.

Accordingly, the expert emphasized that the new price level above will restructure the real estate market in the most effective way and at that time, any business or investor that can withstand the above price level can survive, if not, they will have to restructure their business according to market principles .

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