Cost optimization: A challenging problem for real estate businesses.

Optimizing costs is one of the solutions that real estate businesses must carefully consider in order to reduce prices.

Rising costs, rising house prices, businesses worry about difficulty selling.

In her strategy to capitalize on the new growth cycle, Ms. Nguyen Thanh Huong, Investment Director of Nam Long Company, stated that the laws effective from August 1, 2024, have created a flexible approach for businesses, including project acquisition, land use conversion, M&A activities, and participation in auctions.

However, participating in land auctions poses challenges regarding input costs, leading to higher housing prices and affecting home accessibility for buyers. Businesses must carefully consider setting reasonable prices that meet buyer demand while still ensuring profitability.

"Auctioning land increases the input costs for investors. This is a difficult problem, especially in the context of escalating land prices and other costs," Ms. Huong said, noting that real estate prices are inevitably trending upwards due to rising input costs.

Many investors are wondering whether they should invest in projects when input costs are rising. Besides factors that can be proactively reduced, such as management costs, investors certainly need to ensure profitability to maintain operations and ensure future growth.

To alleviate pressure on housing prices and meet the demand for actual housing, urban development needs to be expanded to suburban areas.

"In the context of rising costs, investors only have two options. One is to proceed if they can target a market and sell the product, and the other is not to proceed. Proceeding must be profitable and contribute to business growth, but how can you do it when costs are too high?" Ms. Huong said.

A market report recently published by CBRE Vietnam also confirms that real estate prices in Ho Chi Minh City will continue their upward trend in 2024, amidst insignificant improvements in housing supply and large price disparities between segments. Specifically, the city is expected to add only 9,000 apartments and 2,000 townhouses, with 83% of these being high-end and luxury segments priced above 60 million VND/m2.

Mr. Le Huu Nghia, General Director of Le Thanh Company, said that the real estate market in Ho Chi Minh City is facing a major imbalance between market segments. While the demand for housing for middle and low-income earners accounts for the majority, most resources are concentrated in high-end projects – which have limited demand.

Mr. Nghia stated that real estate prices in Ho Chi Minh City currently range from 45 to 50 million VND per square meter, equivalent to approximately 3 billion VND for a 60 square meter apartment.

"Land prices and financing costs play a major role in driving up housing prices. In particular, borrowing costs and project delays significantly increase pressure on prices," Mr. Nghia said.

Sharing the same view, Mr. Tran Thanh Hai, Head of Investment at VinaLiving (part of VinaCapital), believes that not only this year, but also in the next one to two years, house prices will continue to rise when the new land price list is applied. Businesses themselves will also face considerable pressure as land prices increase sharply, along with the land use fees that developers have to pay. These factors will push the final selling price to an inaccessible level.

How can we lower house prices?

The real estate market enters 2025 with high expectations for new growth, but in an interview with a reporter from Investment Newspaper, the leader of a real estate company in Ho Chi Minh City said that the market is still suffering from many wounds and market confidence is only gradually recovering. As for businesses, many companies are still facing difficulties due to legal issues, large inventories, and disrupted cash flow.

Furthermore, the implementation of new projects and the handling of old outstanding issues still face obstacles, leading to increased costs; the longer the legal waiting time, the higher the costs.

This expert argues that businesses must engage in extensive cooperation and increase M&A transactions to attract new capital. Most importantly, they must resolve legal obstacles quickly and effectively, reducing costs. Businesses must also choose the right market, the right segment, and target the right potential customers, balancing investment costs and reasonable profits to ensure they acquire real estate at its true value.

According to Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association, in 2024, for the first time, the high-end housing segment dominated the entire Ho Chi Minh City real estate market. Currently, there is no longer any supply of mid-range or affordable housing in commercial housing projects. This reality further distorts the structure of housing products in the Ho Chi Minh City real estate market.

To lower housing prices, Mr. Chau believes that it is necessary to increase the supply of housing, especially affordable housing. However, increasing supply requires resolving the issues surrounding more than 148 stalled and stalled projects. “Ho Chi Minh City and businesses need to increase housing products, especially affordable housing. At the same time, successfully implementing 1 million social housing units will help reduce housing prices,” Mr. Chau said.

From another perspective, Ms. Duong Thuy Dung, CEO of CBRE Vietnam, believes that to reduce pressure on housing prices and meet real housing needs, urban development should be expanded to suburban areas. This requires synchronized investment in infrastructure such as transportation systems, metro, bridges, and roads, to ensure convenient connectivity between the outskirts and the city center.

However, in Ho Chi Minh City, the development of suburban urban areas such as Cu Chi or Nha Be still faces many obstacles due to a lack of infrastructure connectivity. To improve this, the government needs to prioritize investment in ring roads and expressways, thereby creating conditions for the development of land at reasonable prices for commercial housing.

Optimizing costs is one of the solutions that real estate businesses must carefully consider in order to reduce prices.

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