Speculation and Brokerage “Juggling” House Prices
In a recent analysis report on the cost structure, selling price, and reasons for the increase in real estate prices sent to the Government Office, the Ministry of Construction stated that the current housing and real estate prices are structured by seven groups of costs, including land use fees, site clearance compensation; project construction costs; technical infrastructure, social infrastructure, loan capital, sales costs; investors’ profits and related taxes and fees.
These costs account for different proportions for high-rise apartment projects and villa and adjacent house projects, as well as the scale and nature of each project.
Source: Ministry of Construction. Graphic: Hong Khanh |
Based on a detailed analysis of the fluctuations of these cost groups over the past time, the managing agency evaluated that investment construction costs, technical infrastructure construction costs, social infrastructure, loan capital costs, sales and management costs of the investor have little fluctuation or insignificant fluctuation.
Tax and fee policies related to real estate business have also remained unchanged during this period. Therefore, these costs are not the cause of the high housing prices.
The Ministry of Construction pointed out four groups of reasons for the increase in real estate prices during this period. One of which is partly due to the recent fluctuation in land-related costs, as well as the impact of the application of the new calculation method and land price frame.
With the new land price frame close to the market price, the Ministry of Construction assessed that it would increase land-related costs such as site clearance costs, land compensation and recovery, and taxes and fees related to land.
According to the Ministry of Construction’s calculations, the increase in the land price frame could have a chain reaction, triggering a 15-20% increase in the real estate and housing price level compared to before.
In addition, the auction of land use rights with winning bids many times higher than the starting price will also have an impact on increasing land prices, real estate and housing prices in the area and locality. At the same time, it increases the cost of implementing residential projects, causing difficulties for enterprises, reducing the supply of the market, and negatively affecting the real estate market.
Moreover, there is also a reason for the lack of affordable real estate to meet the needs of the majority of the people. The fluctuations of the economy related to stocks, bonds, gold… also affect the psychology of the people and investors, leading to a trend of shifting money to invest in real estate as a “safe haven”.
Source: Ministry of Construction. Graphic: Hong Khanh |
Another reason pointed out by the managing agency is the phenomenon of “creating virtual prices” and “price manipulation” by real estate speculators and brokers for profit.
The price manipulation trick is carried out through the “extra money” that customers have to pay outside the contract for projects with few products but are of great interest to many customers.
During the past time, when the real estate supply was limited, this trick became more and more popular. Even in social housing projects, there were offers to sell “extra money” of up to hundreds of millions of VND.
According to the Ministry of Construction, this extra money is not fixed but depends on the market heat, the project, and the agreement between the broker and the customer, which can be up to 20% or 0%.
As evidence from a low-rise housing project in Hung Yen, the Ministry of Construction said that the houses were sold for about 7-8 billion VND/unit, and customers had to pay an average of about 750 million VND, equivalent to 10%, in extra money. However, when the project cooled down, the extra money also decreased to about 250 million VND. Some floors even accepted to sell without extra money.
Not only in new projects, but the secondary market is also pushed up by extra money.
“Usually, the seller has to spend 1% of the selling price on the broker. However, when the market is hot, brokers often add extra money to transact with customers. For an apartment worth about 5 billion VND, brokers can ‘quote’ 200-300 million VND (equivalent to 5%). For a detached house worth about 10 billion VND, brokers can quote about 500 million VND (equivalent to 5% of the selling price),” said the Ministry of Construction.
In particular, the Ministry also mentioned the trick of “deposit” by brokers in the hot period to buy houses and land and then increase the price by 10-15% and sell them to others. For example, for an apartment worth 5 billion VND, the broker deposits 1 billion VND to buy it and agrees to pay within 1 month. Within this month, the broker will find a buyer and sell it at a higher price of 6-7 billion VND, causing the house price to “jump” by 1-2 billion VND within just 1 month.
How to pull down housing prices?
Housing prices in Hanoi and Ho Chi Minh City have been high for a long time, and some areas have even recorded abnormally high prices, far beyond the income level of the majority of the people, making the dream of owning a home for many people even more distant.
Meanwhile, the report of the Ministry of Construction shows that the country’s housing supply is seriously declining. In the second quarter of 2024, only nine housing projects were completed, with about 6,000 apartments, separate houses, and adjacent houses put into use. And if calculated for the first half of this year, the number of completed housing only reached about 9,000 apartments, separate houses, and adjacent houses. The number of newly licensed housing projects is only about 20,000 units.
The shortage of housing and land supply in Hanoi since the end of 2023 up to now has pushed up house prices.
To reduce housing prices, the Ministry of Construction has proposed many solutions, focusing on removing difficulties in procedures, legal issues, increasing market supply, and promoting the safe and sustainable development of the market. Effectively deploy the policies and laws related to the real estate field that have just been issued.
 Some solutions to reduce housing prices. Graphic: Hong Khanh (Source: Ministry of Construction) |
At the same time, rectify the land auction work, and improve the regulations on land auctions towards increasing the deposit amount, determining the starting price close to the reality, shortening the time for paying the winning bid, and restricting bidders with the purpose of speculation.
Research and propose tax policies for those who own multiple houses and land to limit speculation.
At the same time, there are solutions and measures to limit the negative impact of the issuance of the new land price frame according to the Land Law 2024.
The Ministry also proposed piloting the model of a real estate and land use rights trading center managed by the State.
Strengthen inspection and supervision of land use right auctions, project bidding with land use, and effectively manage real estate business activities, real estate exchanges, brokerage activities…
Hong Khanh
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