Explaining this fact, Mr. Giang Anh Tuan, Director of Tuan Anh Real Estate, shared that real estate prices depend on many factors such as land prices, construction costs, legality, etc. If these factors affect at the same time, it will make it difficult for businesses to reduce real estate prices.
Specifically, for a real estate project, land cost is one of the important input costs that affect the output price. On average, in urban areas, land use fees account for about 10% of the price of an apartment, 20-30% of the price of a low-rise townhouse, and about 50% of the price of a villa.
In recent years, land prices have increased by 15 - 30%, pushing housing prices up by 2 - 8%.
Real estate prices are unlikely to decrease despite sluggish market liquidity. (Illustration photo)
Not only land prices, in recent years, construction materials such as iron, steel, sand... have also increased sharply. For example, iron and steel prices have increased by about 15-20%, while the cost of raw materials accounts for 65-70% of the estimated value of construction projects.
In addition, the cost of implementing the project is also increased because of many legal issues that prolong the construction time. Mr. Tuan said that there are projects that take up to 4-5 years to complete legal procedures. Completing the legal procedures for the project is not simply a matter of the enterprise going to the department and receiving an official dispatch, but must wait for the relevant departments, branches and sectors to give their opinions. The waiting time for procedures must follow the regulations but is often delayed.
“ The time for legal procedures is very long and greatly affects business costs ,” said Mr. Tuan.
Mr. Tuan also gave an example, if a business buys a land plot worth 500 billion VND, each year it will lose 10% of the loan interest cost, which is 50 billion VND. The business is forced to add this cost to the price.
“ Many businesses are now stuck because if they reduce prices, they will suffer heavy losses, and if they do not reduce prices, they will not be able to sell their products. Therefore, with many unfinished projects, many investors do not want to build but are looking for transfer partners ,” Mr. Tuan shared.
Sharing the same view, the leader of a real estate company with an unfinished project in Ho Chi Minh City also acknowledged that the legal entanglement that has lasted for the past few years has made the supply of completed real estate projects quite rare.
Businesses are struggling with old projects, with almost no new products to sell while demand is still very high, which is also the reason for the high housing prices. In addition, inflation and high interest rates are also the reasons why real estate prices are difficult to decrease.
" In case the price has to be reduced, it will definitely be a very deep loss because the business cannot bear the increasing costs of the project ," he said.
Businesses fear heavy losses if real estate prices fall. (Illustration photo)
According to this leader, his company really wants to sell the project to pay off debt, but it is not easy, mainly because the project is entangled in legal issues, regulations on transfer... If the project continues to be implemented, when the product is released to the market, the price cannot be cheap because it has to bear a lot of costs.
According to Dr. Nguyen Duy Phuong, Investment Director of DGCapital, there are many reasons why real estate project investors do not choose to reduce house prices.
In particular, it can be seen that when implementing a project, the investor mortgaged both land and future assets to borrow capital from the bank. Reducing the selling price will affect the value of the collateral at the bank, while the investor has no other assets to supplement the loans.
In addition, many projects have been stuck in legal issues for many years before they can be put into sale. During that time, investors still have to bear the increasing costs of interest and land costs.
As someone who closely follows the developments of the real estate market and businesses, Mr. Tran Khanh Quang, General Director of Viet An Hoa Real Estate Company, said that it is very difficult to reduce real estate prices because in the market there are not only domestic businesses but also many foreign investors.
Accordingly, foreign corporations investing in projects often choose high segments, good locations, complete legal documents and higher product quality than projects of domestic investors, so the price cannot be low.
When selling products to the market, they always calculate the output for 2-3 years later, so the price is often very high. Foreign enterprises have advantages in capital and capital costs, so they are not under pressure to reduce selling prices.
According to Mr. Quang, a major obstacle that makes it difficult for real estate prices to decrease is that investment costs are too high.
" In the current project cost structure, construction costs have nearly doubled compared to 4-5 years ago, from 7-7.5 million VND/m3 to more than 12 million VND/m2 ," said Mr. Quang.
Similarly, Mr. Dao Phuc Tuong, Director of Vietnam Alpha Fund, said that there are three "sensitive reasons" why real estate businesses do not reduce real estate prices to increase revenue and pay off due debts.
Firstly, most real estate developers in Vietnam have “regular investors”. These are investors who buy real estate directly from the investor, temporarily called F0 investors. When prices are reduced, these regular investors are the first customers whose profits are affected, causing investors to consider.
The second “sensitive point” is related to collateral. 70% of the value of the bank’s collateral is real estate, so reducing the selling price will affect the value of the collateral of real estate companies at the bank. When the value of the collateral decreases, the bank will require businesses to supplement it, but at this time, this is an extremely difficult requirement to meet.
Third is the legality of real estate. Many real estate projects have legal problems, so even if the price is reduced, businesses still cannot sell in the current business environment.
“ Those are three main groups of related reasons that affect the decision to reduce selling prices in the primary market, besides there are other reasons such as increased cost of capital. Logically, when we need cash flow, we have to reduce prices to survive, but the delicate factors in between make companies really have to consider before deciding to reduce prices ,” said Mr. Tuong.
Recently, Prime Minister Pham Minh Chinh chaired the Conference "Solutions to remove difficulties in credit growth for production and business, promote growth and stabilize the macro economy ". The Prime Minister directed a series of solutions to remove difficulties in credit growth. In particular, for real estate enterprises, the Prime Minister requested restructuring of product segments and prices. " Through two conferences on real estate, the Prime Minister has proposed this but so far it has not been actively implemented ", the Prime Minister emphasized.
Chau Anh
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