The Rising Supply Doesn’t Bring Condo Prices Down to Earth

“Land fever” in certain areas

The real estate market in 2024 has been unpredictable, with localized price fluctuations occurring in some segments and regions. This surge in prices is localized, affecting specific areas, property types, and real estate segments, ultimately impacting the overall market.

The increase in real estate prices is partly due to the rise in land-related costs associated with the application of new calculation methods and land price tables. Notably, in some localities and regions, there have been instances of land-use right auctions with winning bids multiple times higher than the starting price.

The management and implementation of land-use right auctions in some areas and localities have been inadequate, with instances of investors forming groups to participate in auctions and offering prices much higher than the starting bid. Subsequently, they may forfeit their deposits after winning the auction, intending to create an artificial price benchmark in the area for profit.

According to Mr. Hoang Hai, Director of the Housing and Real Estate Market Management Department (Ministry of Construction), it is necessary to promptly detect and strictly handle cases of violations of legal provisions in land-use right auctions. Efforts should also be made to prevent the exploitation of land-use right auctions for personal gain, causing market disruption, and effectively implementing the project “Investing in the construction of at least 1 million social housing units for low-income earners and industrial park workers for the period 2021-2030.”

Unreasonable apartment prices

Mr. Nguyen Van Dinh, Vice President of the Vietnam Real Estate Association, expressed his concern that land prices in some localities might be pushed up due to the high compensation and site clearance costs in Hanoi and Ho Chi Minh City. This leads to increased investment costs and, consequently, a sudden surge in product prices.

“Real estate prices are unlikely to decrease and are still showing signs of increase. The market is facing a paradox where supply has improved, but prices continue to rise. Generally, if there are no improvements in pricing, transactions will decrease and stagnate, which is a worrying issue for the market,” said Mr. Nguyen Van Dinh.

Mr. Nguyen Quoc Hiep, Chairman of the Vietnam Contractors Association, raised concerns about the significant challenge facing real estate businesses regarding land valuation. Numerous projects are currently stalled due to land valuation issues, and many completed projects have not been valued or released to the market.

“The high land valuation has created a ‘vicious cycle’ between housing and land prices for businesses and the market,” said Mr. Nguyen Quoc Hiep. The current land valuation method has led to a significant increase in land prices. In some cases, a six-month difference in valuation timing has resulted in land prices doubling. This surge in land prices has contributed to apartment prices reaching up to VND 500 million per square meter, a “unreasonable” level that can be attributed to the high land valuation.

Mr. Nguyen Quoc Hiep further mentioned that land prices currently account for 40% of real estate product costs.

While liquidity growth in certain segments in 2024 may drive a recovery in the real estate market, the “artificial” increase in real estate prices, if left unchecked, will lead to adverse consequences for the market and society.