Real estate market in HCMC at standstill

SGI

Within the last two years, the real estate market in Ho Chi Minh City (HCMC) has fallen sharply, with a decline in property sales and housing projects. Many housing construction projects have been delayed for a very long time because procedures for investment have not been completed as yet. Moreover, purchasing poweris showing negative signs of revival.

When supply is in shortage, real estate prices will be pushed up.

When supply is in shortage, real estate prices will be pushed up.

Is the real estate market in HCMC facing a crisis? And when will this situation resolve in favor of market development?

Unabated decline in supply

In 2018, one real estate business named ‘H’, was successful in selling more than 8,000 of their estate holdings, of which most were apartments. According to the planned target, this year, this business will continue to launch about 12,000 more estate holdings in the market. By the end of September, over 3,000 of their estate holdings had been sold. One of the directors of this real estate business company shared: “From now on until the end of the year, the remaining time is less than three months while the implementation of plan for sales and investment is currently lagging far behind. The primary reason is not because of delays in procedures for project investment in HCMC, but because there are no new real estate holdings on offer in the market”.

In 2017, the real estate market in HCMC had achieved the highest growth rate compared to earlier years. Statistics show that 44 projects were recognized legally, 83 projects were approved for investment, and 69 projects received license to build, for a total number of 66,528 apartments, covering an area of over 12.5 million sq.m. In addition, investment for three projects covering an area of over 103,000 sq.m. was also approved. At the same time, 92 potential housing projects with 42,991 houses met with the requirements for capital mobilization, an increase of 1.6 times in the number of projects and 1.5 times in the number of houses compared with statistics in 2016.

By 2018 the real estate market in HCMC had begun to decline considerably. At that time, only investors of 19 projects received legal recognition, 59 projects were approved for investment, and 53 projects were granted construction license, for a total of 39,959 apartments, covering an area of nearly 3.3 million sq.m, a drop of 42% in the number of projects, down by 40% in the number of apartments and a decline of 74% in the total area of housing projects compared to 2017. Besides, only investment for eight projects with an area of 323,600 sq.m were approved; 77 potential housing projects with 28,316 houses were eligible for capital mobilization, down 16.31% in the number of projects and down 34.14% in the number of houses compared to 2017.

This downward trend has continued unabated in the market, which indicates the alarming number of failed projects recorded in the first nine months of 2019. Specifically, only one housing project was approved for investment, down about 83% in the number of projects. Also, no housing project of an investor was recognized; only 12 projects were approved for investment, down about 72%; and 24 projects received license to build, down about 38%, compared to the same period in 2018. At the same time, only 32 housing projects with 19,662 houses for potential construction met with all conditions required for capital mobilization, a decrease of 58.44% in the number of projects and down 30.56% in number of houses.

At a meeting with departments for government revenue in the first nine months of 2019 in HCMC, Tran Vinh Tuyen, Vice Chairman of the People's Committee stated that the construction sector would gain negative growth rate of -1.5% in 2019 compared to that of about 7.5%/year in previous years.

Real estate stagnation creates serious impact on a series of related industries in many ways, such as steel, furniture, building materials. Accordingly, in the past nine months, construction enterprises reduced 30-50% of number of construction contracts; suppliers for equipment also decreased their business revenues; and enterprises producing equipment and building materials also faced difficulties in production and consumption of their products. Moreover, a number of workers were left unemployed, with their income decreasing substantially.

Current situation a threat to real estate businesses

In reality, the real estate market indicates the current lag in sales. Thus, if effective measures are not applied in dealing with the present situation, the market size will decline even further, causing serious difficulties in all real estate business companies, even creating a high risk of bankruptcy. The biggest difficulty facing this market today is delay in many housing projects, leading to a lack of projects and estate holdings, especially in affordable commercial housing and social housing. The imbalance between supply and demand occurs from inadequate supply as opposed to sudden and extreme high demand. This is more likely to push up house prices, and easily lead to more speculation and swing trading. 

Tax debts related to real estate are going up by nearly VND 6,000 bn. This situation should warn the government that revenue from land use fee and the real estate market may further reduce in coming time.
- Le Duy Minh, Deputy Director, HCMC Tax Department
Currently, it is being said that the real estate market in HCMC is already beginning to enter this difficult situation. This is primarily due to problems and conflicts in some legal regulations and law enforcement. Mr. Le Hoang Chau, Chairman of HCMC Real Estate Association, said that the real estate market is in a temporary problematic situation, leading to a decline in market size in the last two years. In its present situation, the market will continue to go down in coming time unless a resolution is implemented with immediate effect.

Multiple obstacles in project investment procedures are causing the real estate market to face difficulties currently. Although there have been many suggestions at meetings with authorities on how to resolve the present negative situation, it seems that not many effective practical methods are as yet in sight. Recently, Vo Van Hoan, Vice Chairman of the People's Committee of HCMC, chaired a meeting with the Department of Construction and other related departments, to reach some sort of solution to the various problems in construction licensing. However, up until now, even though suggestions for new regulations to overcome the current crisis have been sent by the departments to City leaders, there still has been no response approval or decision made so far.

If City leaders are not able to resolve the current negative decline soon, it is certain that the real estate market in HCMC will soon fall in an even more difficult situation and HCMC businesses will be compelled to go “off-shore fishing” as they are doing at present.

Translated by Thúy Hằng

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