AFFORDABLE HOUSING IN HO CHI MINH CITY IS STILL IN HIGH DEMAND
The high demand for affordable housing is one of the big issues that need to be addressed as soon as possible in most big cities of the country, especially in Ho Chi Minh City where has been attracting a large number of migrants every year. Yet, the facts and figures show that the city’s affordable housing development has not been strong enough to meet the real demand, making dream houses of many low- income people out of reach.
( An affordable housing project of National Housing Organization in Binh Tan District)
Sign of slowing down
According to the HCMC Institute for Development Studies, up to 81,000 households and individuals are in need of affordable housing in the 2016-2020 period. The HCMC Department of Construction has also planned to develop 39 low-cost housing projects which provide 45,000 apartment for low-income groups in the 2017-2020 period. But, this number is far below the city’s demand for this housing segment going into 2020.1)
According to a Lao Dong newspaper report, a majority of housing projects put up for sale in HCMC from December 2017 to February 2018 fall into the mid-range segment. Each unit costs over VND1.5 billion (US$65,750), excluding valued-added tax and other costs. 2 Besides that, The HCM City Real Estate Association (HoREA) has predicted the HCM City housing market will continue to grow this year, especially the VND1 billion (US$44,000) condo segment because this segment is most convenient for transaction while the luxury will be restructured in line with actual demand.
However, in fact, the property market was slightly down in the first five months of 2018 compared to the same period of 2017, with only 29 projects launched, almost 10% fewer. In which, nearly 9,200 housing units were put in the market, 8,690 of them apartments and the rest houses, down by more than 44%. The slowdown had spread to the apartment market as well, with the luxury segment declining by 26%, the mid-price segment by 32% and the biggest slowdown is for the low-end segment plummeting by 70 %. 3)
Specifically, in the first half of 2018, the number of affordable apartments opened for sale in Hà Nội and HCM City decreased by 20% and 36%, respectively, over the same period last year. CBRE forecast that the supply of affordable products will remain scarce until the end of this year. 4)
Difficult to build affordable housing
Market watchers said the HCMC property market is short of affordable housing projects because of surges in building material prices and land scarcity. Local property developers have had no way but to push up home prices.
To make more low-cost homes available on the market, the HCMC Real Estate Association has proposed the city government give property investors the green light to build smaller units (under 45sq.meter) as long as the number of such units does not exceed one-fourth of all units in a single project.4)
According to forecasts of many real estate experts, from 2020 onwards, construction firms will find it difficult to build affordable housing as the cost of construction per 1sq.m is likely to increase, up to VNĐ24 million per sq.m. Therefore, a 45sq.m apartment will cost about VNĐ1 billion.
It was known that the price of affordable apartments was VNĐ13 million per sq.m in 2012; but the price has increased by over 50% to VNĐ18-20 million per sq.m in 2017 and in the first months of 2018, affordable units’ prices are VNĐ24-26 million per sq.m.5)
Other difficulty, according to a report by Dau tu Tai chinh, despite strong demand for low-cost apartments in major cities, property enterprises have shown little interest in this segment because there is no more funding available to support affordable housing policies since VND30-trillion loan package disbursed in June 2016.6)
Thus, to boost the affordable housing segment, we need to address the two main obstacles of capital and supply. The State should consider to allocate roughly VND1-2 trillion (US$44-88 million) for supporting the development of affordable housing for most low-income people. In addition, commercial housing projects should also dedicate part of its coverage area to the development of affordable housing with flexible and suitable areas.
Finally, the transparency in the real estate market should be strengthened by tight credit policies, so as to avoid the exploitation of preferential policies to profiteer and minimize the speculation of affordable houses. 7)