Why can't house prices go down?

Data from the Vietnam Association of Realtors shows that over the past 10 years, real estate prices have increased dozens of times. In 2021 alone, the average house price grew by double digits, even many times higher than the same period. Currently, although the market has slowed down, the apartment segment is still maintaining its growth momentum.

Similarly, Savills Vietnam pointed out that in the third quarter of 2023, the average primary price of apartments reached VND 54 million/m2, increasing for 19 consecutive quarters and increasing by more than 77% compared to the first quarter of 2019.

According to experts, although housing prices have increased, they cannot be reduced in the short term. The reason is that many costs make up the high prices such as: land prices, construction material prices, loan interest...

Mr. Giang Anh Tuan, Director of Tuan Anh Real Estate, analyzed 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.

Rising costs make it difficult for businesses to lower housing prices. (Illustration: Cong Hieu).

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%.

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, it will lose 10% of its loan interest each year, 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.

Mr. Tran Khanh Quang, General Director of Viet An Hoa Real Estate Company, also said that 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.

Besides, according to Mr. Quang, it is very difficult to reduce real estate prices because the market has not only domestic enterprises 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 2-3 years later, so the price is often very high. Foreign enterprises have advantages in capital sources and capital costs, so they are not under pressure to reduce selling prices.

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.

Chau Anh

Source