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HCMC real estate showing instability

Released at: 20:50, 23/07/2016

HCMC real estate showing instability

Photo: Duc Anh

HoREA report shows potential for city's real estate market to become unstable.

by Hong Nhung

A recent report from the Ho Chi Minh City Real Estate Association (HoREA) reveals that the number of real estate transactions has stagnated and there has been a clear trend towards the high-end segment.

The city’s property market lacks small and medium-sized housing of one or two bedrooms at a reasonable price.

In the second quarter of 2016 market transactions fell slightly while the market at the beginning of the third quarter has seemed unusually crowded after a wide range of products from large projects have been launched. Property developers are clearly in a race for market share, the report noted.

Affordable apartments dominated the property market in the second quarter in the south-east area of the city while the early days of the third quarter has seen the emergence of luxury apartments, villas, and townhouses in the south, east and west.

According to figures from the city’s Department of Construction, 34 projects were launched on the market with 14,901 apartments, an increase of 1.8 times quarter-on-quarter, the number of medium and high-end apartments rose 16 per cent, while the number of small apartments fell 18.9 per cent.

The HoREA report also commented that there have been some investors in the market abusing deposit regulations under Article 328 of the Civil Law while the Law of Real Estate Business does not address the issue. They have violated the law in raising funds in advance through measures such as deposit contracts and loan contracts with house buyers that have raised the risk for buyers. There has been a huge increase in secondary investors who benefited from buying and selling in the medium and high-end housing segment.

Problems have been seen recently in Ho Chi Minh City's property market, including projects such as Harmona, Bay Hien, Rubyland, and Petrolandmark. These developers violated provisions of the Law on Investment and Law on Construction. Property at Harmona and Bay Hien have been used as collateral by both the developer and the owners.

Other violations were seen in these projects. Investors have not complied with regulations on collateral, unsecured loans and housing sales, which have affected purchasers and social security and disputes in condominium projects remain complicated.

According to HoREA, these issues are consequences of the real estate bubble in 2006-2007. Developers lack professionalism, are incompetent, or use deposits and credit for the wrong purposes. There has also been loose management by credit organizations.

Instability has also been due to many real estate projects being used as collateral for loans for investment capital at commercial banks. Even deposit contracts from customers have been used as collateral.

According to recent reports from real estate consultants, landed property was active in both Ho Chi Minh City and Hanoi during the second quarter. There were 820 landed property sales in Ho Chi Minh City, representing growth of 81 per cent quarter-on-quarter and 110 per cent year-on-year, according to Savills Vietnam.

Historically, a townhouse in Ho Chi Minh City was three times more expensive than a high-end apartment. This has now fallen to 1.7 times in newly-developed areas and is well within reach for many potential buyers.

Savills Vietnam also forecast that landed property demand in 2016 will be 103 per cent higher year-on-year in Ho Chi Minh City. Compared to regional peers with similar population densities, such as Kuala Lumpur, Bangkok and Jakarta, Ho Chi Minh City and Hanoi’s primary supply of landed housing is relatively small (less than 10 per cent), leaving ample room for future growth.

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