Skyrocketing Condo Prices Spark Debate: Should Luxury Segment Prices Be Curbed to Cool the Housing Market?

Boosting Supply for Underserved Market Segments

During a recent panel discussion, Tran Quang Trung, Business Development Director at One Housing, highlighted the imbalance in the real estate market’s supply. However, “imbalance” doesn’t mean “oversupply.” It’s crucial to understand that the market comprises four main segments: affordable, mid-range, luxury, and ultra-luxury, with an additional super-luxury category.

From 2023 onwards, the affordable and mid-range segments have been notably absent from the market. Specifically, the affordable segment has seen virtually no new projects. Similarly, the mid-range segment, which caters to the majority of society, has also lacked new developments.

In contrast, the luxury and ultra-luxury segments dominate the market. Interestingly, despite the concentration of supply in these segments, demand remains high. According to our latest report, the absorption rate for these two segments is nearly 90%.

This imbalance has driven up the average condominium price in Hanoi significantly. Currently, the average price stands at 85.6 million VND per square meter. For comparison, in 2022, this figure was around 50 million VND per square meter. The primary cause is the shortage of affordable and mid-range properties, which has inflated the overall market prices.

If we can increase the supply for these two segments in the future, the broader market will stabilize, naturally adjusting prices to a more reasonable level. Compared to Ho Chi Minh City, Hanoi’s property prices are gradually closing the gap. Before 2021, Ho Chi Minh City’s property prices were consistently higher than Hanoi’s, but this disparity has nearly disappeared.

Mr. Trung noted that some suggest capping luxury segment prices to reduce overall housing costs. However, this approach is flawed. Policies should be data-driven and based on detailed research into each segment. Each segment should reflect its true value. The key is to address the root cause: increasing supply for underserved segments.

Affordable Housing Supply to Surge in the Next Decade

Regarding affordable housing, Nguyen Thanh Quyen, CEO of Thang Loi Group, believes there are two primary segments: low-cost commercial housing and social housing. “I’m confident that many businesses will enter this field soon. This optimism stems from the resolution of three major bottlenecks in social housing—approximately 2.5 out of 3 have been addressed.

First, input costs are now more transparent and clearly defined.

Second, profit caps have been adjusted. Previously, a 10% profit margin posed significant risks, with a single miscalculation potentially leading to losses. Now, this cap has been raised to 13%, and we anticipate further flexibility in the future.

Third, the eligibility criteria for purchasing, renting, or lease-purchasing social housing have been significantly expanded, increasing the number of beneficiaries,” said Mr. Quyen.

According to the CEO of Thang Loi Group, these changes will undoubtedly attract a new wave of developers to the social housing sector. For businesses, a profit margin above 10%—higher than current bank interest rates in this era of “cheap money”—provides a strong incentive to invest.

“I’m very optimistic that within the next decade, Vietnam’s younger generation will have the opportunity to own their first home. Achieving this goal requires collaboration across the board, from regulatory bodies to major industry players, the ‘Big Four’ of Vietnam’s real estate market,” Mr. Quyen emphasized.

Mr. Quyen observed that the four major banks now offer special programs for individuals under 35, featuring interest rates as low as 5.5% and extended grace periods. This is a highly positive development. The government is also considering similar policy adjustments to support young people starting their journey toward homeownership and career establishment. This is why the CEO of Thang Loi Group is optimistic about the affordable housing market’s future.

Mr. Quyen also noted that succeeding in real estate today requires more than just ambition. Developers must possess three critical elements to thrive.

First, a land bank. Companies must have land reserves or, at the very least, a sustainable strategy for rapid land acquisition.

Second, a robust financial foundation. Without stable financial planning, early project launches can lead to significant challenges. For instance, some projects with secured land and market demand have taken over two years to complete basic legal procedures. Fortunately, the Ministry of Construction recently waived construction permits for certain cases, a double-edged sword. For legitimate developers, it’s an opportunity. However, those cutting corners will face legal completion issues during inspections.

Third, genuine implementation capabilities. Companies that have weathered multiple market cycles understand customer needs and market rhythms. Inexperienced developers will struggle to succeed in the current environment.