Real estate market in Ho Chi Minh City stands paralyzed

SGGP Investment & Finance has posted many articles concerning the current static state of the real estate market in Ho Chi Minh City since the end of 2018 which was caused by several complicated, conflicting and ineffective regulations. These bottlenecks, if not resolved, besides creating difficulties will also face risk of bankruptcy in some real estate companies.

According to data of Construction Management Office in Ho Chi Minh City, 76% of real estate projects have been suspended due to the problems of mixed land, and only 24% projects cover residential land.

According to data of Construction Management Office in Ho Chi Minh City, 76% of real estate projects have been suspended due to the problems of mixed land, and only 24% projects cover residential land.

Projects on hold

According to Ho Chi Minh Real Estate Association (HoREA), in the first six months of 2019, only three new commercial residential apartment projects were passed appraisal by the Construction Management Office of Ho Chi Minh City and qualified for submission for approval by Ho Chi Minh City People’s Committee, which is a huge drop of 84.2% YoY. The total size of these projects is about 2.2ha with 924 apartments.

This year, the Construction Management Office of Ho Chi Minh City has only approved 10 projects of commercial residential apartments, a decrease of 82.2% YoY.

In 6M/2019, only 24 projects have qualified to sell to customers, a decline of 10 projects, with total number of 7,313 apartments, 2,336 units lower than 2018. In which the number of luxury (2,227 units) and mid-end apartments (1,249 units) fell 43.8% YoY and 34.7% YoY, respectively.

According to Nguyen Xuan Quang, Chairman of Nam Long Real Estate, the complicated and unclear administrative and legal process is the constraint in growth of not only Nam Long but also other real estate companies. Many government investigators jump in to investigate, which in turn has consumed huge time of real estate companies, almost 2-3 years.

The process to calculate the land use tax of real estate projects is very slow. Some projects are on hold for a year. Some profiles have also been asked to add more documents many times over, or are transferred around and are not able to reach the appraisal committee of Ho Chi Minh City People’s Committee.

According to Nguyen Nam Hien, Deputy CEO of Hung Thinh Corp, the d0rop in market supply has been mainly caused by the bottlenecks in process of land price appraisal and government investigation. Some companies were willing to pay the land use tax in advance to develop the projects faster but were refused. Some other companies have been required to settle the land use tax right after they kicked off the projects. This caused financial burden for real estate companies as they had to pay huge amounts before even getting sales money from customers.

The situation is the same at Quoc Cuong Gia Lai, where 7 out of 8 projects of the company are suspended because of legal issues, such as Song Da project (2.8 ha. in Thu Duc District), Phu Huu project (7 ha. in District 9). The company has compensated to the owners and most of these two projects cover agricultural land and some areas of the projects are adjacent to rivers or canals. Although Quoc Cuong Gia Lai has tried to work with the authorities, the projects have still remained on hold for a very long time.

In District 7, Green Star Sky Garden project was suspended as the developer has still not received the approval of Ho Chi Minh City People’s Committee. The project lacks a construction certificate, has not completed the name-transfer procedures and not yet paid the land use tax.

According to some experts, the slowness in documentation process by the authorities is the reason why several developers construct their projects before getting approval.

According to some developers, the procedure to change land use purpose takes too long, causes many constraints for developers to complete the projects on time, and creates unnecessary high costs for real estate companies.

When will these bottleneck be removed?

Some typical reasons which cause the projects to be on hold include complicated legal procedures, unresolved legal issues related to use of land, slowness in calculating land use tax, and investigation or intervention by authorities to re-clarify the legal status of the projects.

HoREA has proposed to Ho Chi Minh City People’s Committee to review and resolve reasonably the problems of 100 suspended projects. The longer the investigation process takes, the more capital and opportunities costs the real estate companies will incurve. This is also the reason for the drop in number of projects in the market which in turn causes a barrier for customers to find suitable apartments. The government land tax revenue is also a drop causing lower sales volumes.

Since the beginning of 2019, the real estate supply has dropped significantly, especially in Ha Noi and Ho Chi Minh City. The total supply of residential houses in Ha Noi fell 25% YoY, the trading volume in this city also declined 28% YoY. In Ho Chi Minh, the supply tumbled 50% YoY, much more significantly than in Ha Noi.

HoREA also suggested the Finance Office of Ho Chi Minh City build a set of standards for appraising the land price of commercial business projects as well as commercial residential apartment projects in the City to properly calculate the land use tax for these projects. The association also suggested the Finance Office and the National Resource and Environment Office coordinate in completing the administrative procedures to shorten the time for calculating the land use tax and increase the tax revenue for the government. However, so far these problems have still not been resolved.

Some projects are on hold because they are over a mixed land area with different user purpose, such as agricultural land and public land. Vo Van Hoan, Vice President of Ho Chi Minh City People’s Committee, said that the City authorities have delegated the Natural Resources and Environment Office to find a solution in a way that will allow the authorities to exchange and do the auction for the public land area.

Currently, the process to issue the land use rights certificate for these mixed projects is very complicated. According to the Public Land Law, the public land must be auctioned whatever the size is.

The City’s authorities are finding solutions to exchange the public land area for other land areas. It means the companies who have this land area in their projects have to compensate the government by other equivalent clear land areas.

Suggestions to revise Construction Law

According to one developer in Ho Chi Minh City, a project now has to follow many legal frameworks at the same time, such as Investment Law, Construction Law, Land Law, Environment Protection Law, Residential Housing Law, Business Law. These regulations are usually conflicting and inconsistent. Some regulations are outdated, creating constraints for the development of real estate projects.

According to HoREA, after five years of implementation of the Construction Law, many problems are still arising. Some regulations and legal terms need to be revised and updated. For example, it should add the procedure of basic appraisal and the procedure of architecture appraisal to the procedure of construction certificate issuance. Currently, these three procedures are separate.

According to the current regulations, every project which has a height of above 75m or has more than 25 floors has to get approval from the Operation Management Office for qualifying the basic and architecture appraisal. However, after completing these two steps, the project still has to submit the documents to the Construction Management Office to get a construction certificate.

HoREA has suggested to authorities to not require the construction certificate in some projects of infrastructure construction or for residential housing and apartment projects which are approved by authorities, having a 1/500 plan and having passed the rounds of basic and architecture appraisal.

The Ministry of Construction is tasked to build the Draft Revised Construction Law to present in the next meeting of National Assembly in October 2019.

In the meeting on 3 July 2019 in Ho Chi Minh City, Hoang Cong Nhu, Head of Construction Management Office in Ho Chi Minh City (a unit of Ministry of Construction) said that the new version of construction law will revise 46 out of 168 articles.

Accordingly, the Draft Revised Construction Law will shorten the legal procedure, simplify the administrative process, improve the business environment, increase the delegation, identify clearly the responsibility and the role of each participant in the development process of the projects.

For example, the Draft Revised Construction Law will integrate the procedure of architecture appraisal with the procedure of construction certificate issuance. The projects which are funded by government budget of big size and impact the whole society, community and environment will only have to follow two steps, rather than three steps as per the current law. The time period to issue the construction certificate will shorten from 30 days to 20 days. The government will delegate the issuance of construction certificate to local authorities. The Ministry of Construction will not issue the construction certificate anymore.

Minh Tuan

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