Brian Jeffrey
Factors Influencing Housing and Real Estate Prices
The Ministry of Construction (MOC) recently reported to the Government Office, explaining that current housing market prices are determined by seven main components: land rental fees, site clearance compensation, development costs, social and technical infrastructure, capital and sales expenses, investor profits, and applicable taxes and fees.
These costs vary based on the type and quality of housing projects, such as apartment complexes, villas, and townhouses.
The MOC’s analysis revealed that construction costs, technical and social infrastructure expenses, as well as capital and management costs have shown little variability. Additionally, tax and fee structures have seen no recent changes, indicating they are not contributing factors to rising housing prices.
Causes of Recent Price Increases
The ministry identified four key factors driving up real estate prices, notably increased land-related costs, new pricing calculation methods, and a revised land price framework.
Recent adjustments have led to elevated land prices, which are closer to true market values. Consequently, developers face higher clearance expenses, driving up overall costs.
This new pricing framework may trigger a chain reaction that could raise property values by 15-20 percent.
Additionally, high land bids exceeding starting prices have led to heightened local land values and development costs, subsequently limiting market supply and negatively affecting the real estate sector.
MOC also attributes rising housing prices to a shortage of affordable options suitable for most individuals. Market fluctuations in sectors like securities, bonds, and gold have influenced investor behavior, with many viewing real estate as a secure investment.
The Role of Speculation in Price Inflation
Speculation has further exacerbated price hikes, as brokers and speculators artificially inflate costs for quick profits. Often, buyers face additional expenses beyond the listed prices. For example, prospective homeowners in Hung Yen have reported paying an extra VND750 million for properties advertised at VND7-8 billion, with actual prices reaching 10 percent above quoted figures.
Even social housing purchasers encounter fluctuating extra costs, influenced by market dynamics and negotiation outcomes between brokers and buyers. In Hung Yen’s case, the added cost later decreased from VND750 million to VND250 million.
Price inflation appears evident not just in newly launched projects but also across the secondary market. Sellers typically pay brokers a commission of 1 percent, but during market peaks, brokers may inflate prices, pocketing the difference. For instance, when a unit’s selling price is VND5 billion, brokers may advertise it at VND5.2-5.3 billion.
Broker tactics can include negotiating a deposit for properties, subsequently reselling them at a significant markup, further contributing to price disparities and market volatility.
State of the Housing Market
As sky-high prices in Hanoi and HCM City persist, this remains a concern for regulatory agencies, particularly as housing costs often surpass average earnings for many individuals.
Furthermore, MOC’s findings indicate a stark decline in housing supply, with only nine projects yielding 6,000 dwellings completed in the second quarter, a drop from 9,000 in the first half of the year.
