Reasons for sharp increase in apartment prices

Why are apartment prices increasing so much?

According to Nguoi Lao Dong , over the past year, although the interest rate for home loans has dropped to half of its peak, the real estate market in general has faced many difficulties, but the price of apartments in big cities has still increased. Many people now find it almost impossible to buy an apartment with a price ranging from 25-30 million VND/m2 in Hanoi's inner city.

According to January 2024 data from Batdongsan.com.vn, affordable apartments in Hanoi cost around 30 million VND/m2, up 2% compared to December 2023, while mid-range apartment prices also increased by 2%, to 30-50 million VND/m2.

Also according to Batdongsan.com.vn, with segments that meet real needs such as buying, selling, and renting secondary apartments or retail space in the inner city, many real estate brokers have started working right after Tet holiday. Scarce supply while increasing demand makes the transaction situation after Tet more vibrant in these segments.

Similarly in Ho Chi Minh City, the price of affordable apartments in January 2024 increased by 4%; the price of mid-range apartments increased by 1% compared to December 2023.

Real Estate - Reasons for the sharp increase in apartment prices — Apartment prices in the center of Ho Chi Minh City and Hanoi continue to increase, especially in the affordable and mid-range segments. Illustrative photo from the internet

Speaking to a reporter from Nguoi Lao Dong Newspaper, Mr. Nguyen Quoc Hiep, Chairman of Global Real Estate Joint Stock Company (GP Invest), commented that apartment prices have increased unusually recently. The reason is that customer demand, especially among young people, is very high but the supply on the market is low.

Mr. Hiep cited the apartment project on De La Thanh Street, Hanoi, which was built by his company and put into use in 2012. At that time, the investor advertised the apartment for sale at a price of 26-28 million VND/m2. More than 10 years later, the price of this apartment was advertised for sale at 50 million VND/m2, double the starting price. Similarly, The Nice Tower project, Pham Van Dong Street, Hanoi, in 2021, this company advertised for sale at a starting price of 42-46 million VND/m2, after 2 years it increased to 75-85 million VND/m2.

People's incomes cannot keep up with rising housing prices.

According to VTV , the price of an apartment in Hanoi's inner city is currently equivalent to 45 years of the average income of a worker. Hanoi is therefore among the most difficult capitals in the world to buy a house. This is the announcement of NetCredit - a platform of the US-based technology company Enova International.

According to research by Savills Vietnam, in 2023, Hanoi's average income per capita will reach 150 million VND/person. Compared to 2019, the average income growth rate is 6% per year. Meanwhile, the increase in apartment prices from 2019 to 2023 is 13% per year.

Thus, the increase in housing prices is more than double the increase in average income of people and the trend this year predicts that housing prices will continue to increase, far exceeding people's income.

Apartment prices are forecast to increase further in 2024

According to the Ministry of Construction , with the current population growth rate and housing demand, each year, the country needs to add about 70 million square meters of urban housing to serve new urban households.

The real estate market from the beginning of 2023 until now has many segments declining or "frozen", but apartment prices are still increasing continuously, currently reaching an average threshold of 53 million VND/m2 in Hanoi.

Meanwhile, in Ho Chi Minh City, prices have slowed down, but are still at a high level of VND61 million/m2. Currently, apartments priced from VND2 to VND4 billion are the most sought after.

It is very difficult to solve the situation of apartment prices far exceeding people's income and prevent the sharp price increase. Because with real estate projects, the investment preparation stage often takes a long time, making it impossible to have immediate supply.

Many projects are stalled due to legal problems; high land prices, increased construction material costs; increased costs for land acquisition, clearance, and compensation... all add up to further increase apartment prices.

According to real estate experts, if the supply is not improved soon, the pressure on apartment prices in large cities will continue to increase in 2024. Finding an apartment will become more difficult for people with limited incomes, young families, and families from rural areas to the city, not only this year, but will also last through 2025 - 2026.

The shortage of supply is continuing to push housing prices higher in the coming years. It is clear that comprehensive solutions are needed because over time, new urban households will increase in number, not only due to urbanization but also due to cultural changes, especially the need for the younger generation to "live separately" from extended families.

Dao Vu (T/h)

Source