A construction expert talks about Vietnam’s need to create more low-income housing

Apartment buildings in Ho Chi Minh City. Land prices must fall to make apartments available to low-income earners, a construction expert said.

High land prices have driven up the cost of housing. In order to make apartments available to low-income earners, land prices must fall and the construction sector must become more competitive, according to Pham Sy Liem, deputy chairman of the Vietnam Construction Association.

Thanh Nien Weekly: Some say that Hanoi’s low-income apartment prices of VND11.6 million (US$580) per square meter are too high. What do you think?

Pham Sy Liem: Those who can afford apartments at that rate are not low-income earners.

Low-income earners can’t afford any apartment! Even those who can afford to pay VND6 million per square meter can’t be called low-income earners, in Vietnam.

Without help (from the state), low-income earners won’t be able to buy homes.

Apartments priced at VND11.6 million per square meter cannot be called “low-priced” apartments. In rural mountain towns, people are paying VND5 million per square meter. However, the incomes there are far lower.

There are apartments particularly in small-scale, privately developed apartment complexes that are priced much lower than the recently completed “low-income” projects. One or two years ago, construction firm Vinaconex sold apartments in Xuan Mai Town in Hanoi for just VND4 million per square meter. But Vinaconex already owned the lot and didn’t have to buy new land.

Is the cost of construction a major factor in high housing costs? Is building expensive here, compared to neighboring countries?

Some things may be more expensive in Vietnam, like steel and cement. However, other materials are cheaper, like construction sand and stone.

Vietnam now buys and sells building materials on the global market. Material costs in Vietnam shouldn’t differ much from regional rates.

In fact, construction costs are rather low. I think that, now, the cost may have risen to VND7-8 million per square meter, at most.

But project backers have to profit from their investment — so there will always be some markup. In addition, home prices are determined by location, supply and demand dynamics, and competitiveness among construction firms.

So sales prices are not determined by construction costs and investor profits alone. They depend on many other factors.

One foreign property investor claimed he could build apartment blocks for just $250 per square meter, excluding the cost of land. I believe it’s possible to do so.

Prices offered on low-income apartments in Hanoi are much higher than those in Da Nang and Ho Chi Minh City. Why is there such a significant price difference?

There may be some assistance in terms of land grants or tax breaks [in HCMC and Da Nang].

However, firms only invest in housing projects when they believe they’ll turn a profit – even with government support.

The gap between housing demand and supply in Hanoi is larger than the one in HCMC. Thus, low-income apartments also follow market rules. The state facilitates market activity, and investors do business only when they see a profit. No one can force them to build apartments for low-income earners.

So what can be done to create more affordable housing for low-income earners?

The key issue is to create a competition.

Many investors want to build low-priced apartments and, in a competitive market, they won’t be able to raise prices as high as they want.

There aren’t many low-income projects in Hanoi, but thousands of people want to buy them. Given the outsized demand, investors will always try to sell apartments for as much as possible.

Land prices also add to high housing costs.

Despite state support, investors have to pay large unofficial transaction fees for land use rights. The transaction fees get rolled into housing costs, driving apartment prices above VND10 million per square meter.

To lower housing prices, the most important thing is to lower land prices.

There is a simple way to do this – the state should conduct site clearance and build infrastructure in areas designated for low-income housing.

Then, they should invite firms to bid on construction. Those who offer the lowest prices and best quality should get the contracts.