The Unavoidable Rise in Housing Costs: Navigating the Perfect Storm of Soaring Construction Expenses and Dwindling Supply

The real estate market is set to become an exclusive playground for financially robust investors. With the new regulations stipulated in the 2023 Real Estate Business Law, enterprises must possess a minimum capital requirement of 50% to initiate property development projects. This legislative shift underscores the evolving landscape of the industry, where only the financially formidable will be able to dominate the market.

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Home Prices Bear the “Brunt” of Additional Costs

The Law on Real Estate Trading and Housing Law, both passed by the National Assembly at the November 2023 session, will take effect on January 1, 2025. However, according to a draft resolution recently announced by the Ministry of Justice, the Government proposes to allow these laws to take effect six months earlier, i.e., from July 1, 2024.

Analysts suggest that, from 2024, the real estate market will witness a purge, gradually eliminating investors with weak financial capabilities and resources. Instead, only those who can secure finances, offer products that meet market demands, and ensure legal compliance will remain in the market.

Aiming to protect the interests of homebuyers, the Law on Real Estate Trading stipulates that new real estate projects must be constructed according to approved plans and designs before they can be sold or leased. Furthermore, according to Article 23, Clause 5 of the new Law on Real Estate Trading, developers can only collect a deposit of up to 5% of the sale or lease-purchase price from customers. Subsequently, the maximum amount that can be collected before the handover of the future home is 50% of the contract value, as opposed to the current 70%.

With this regulation in place, developers will face significant challenges in terms of project funding. Customer payments are one of the essential channels for capital acquisition. The new rule reduces this source of funding, requiring investors to proactively seek and arrange capital from other channels to ensure financial stability for project implementation. Consequently, the increased interest expenses will contribute to the overall project development costs.

In addition to the rising costs of materials, labor, land, and annual land taxes, the increased interest expenses and the decreasing supply of new housing, especially in the affordable segment, will inevitably lead to an upward pressure on housing prices. Projects launching their products after July 1, 2024, will undoubtedly set new price thresholds.

Construction Costs Rise, Making Moderately Priced Apartments Scarcer

Considering the dynamics of new supply, it is evident that the current availability of apartments presents a window of opportunity for homebuyers. Apartments priced at over VND 2 billion per unit for a two-bedroom configuration, located within a 30-minute commute to the center of Ho Chi Minh City, with convenient transportation and situated in an area boasting abundant infrastructure and civil amenities, will become increasingly rare.

The Ho Chi Minh City Real Estate Association predicts a persistent imbalance in the city’s housing supply and demand. This shortage of new supply can lead to higher prices or sustained high prices, especially with the market’s bias towards high-end segments and a severe lack of affordable commercial housing, social housing, and government-subsidized housing. In the first quarter of 2024, the city approved only one commercial housing project in terms of investment policy.

The limited supply will be a factor in keeping housing prices high. According to CBRE Vietnam’s forecast, apartment prices could rise by about 20% in 2024. Looking back at the market, we can see that condo prices have been consistently rising for many years, and there are no signs of cooling down, especially for properties in rare and prestigious locations. As a result, homebuyers waiting for prices to drop may find themselves unable to purchase a home. With the current price levels, it is apparent that real estate prices are outpacing incomes. According to calculations by Batdongsan.com, the condominium price index in Ho Chi Minh City has outpaced income growth since 2015, with an increase of 82%.

The Bcons City commercial tower integrates a chain of central utilities in the Bcons City urban area

To address the housing needs of the people, experts suggest that urban population decentralization from the core to the peri-central regions or adjacent localities can make housing more accessible.

SOURCEcafef
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