NEWS
Waiting for the third bout of price cuts
24-10-2012
 An apartment project in HCMC - Photo: Dinh Dung |
In early 2012, the market was still dreary. However, prices were not reduced much but mainly leveled off. Until the middle of the year, the pressure on bargaining away returned when real estate businesses seriously lacked capital, and the inventory was too high.
Certainly, it was not the last stage of price cuts.
Two bouts of bargaining away
HCMC has seen two bouts of property price reductions. In the first, developers lowered prices to sell off their inventory. Typically, the Green Building project used to have the sale price at VND11 million per square meter (including VAT), and only hand over unfurnished apartments. The buyer should spend VND1-1.5 million more per square meter to get the interior done.
The second bout came from investors. Recently, Dai Tin A Chau and An Binh Land have lowered the price of 120 furnished apartments in the Hoang Anh Riverview project in District 2 from VND28 million to VND18.1 million per square meter (excluding VAT). This price was 30% lower than three years ago. It was the second price reduction of this project. The first time was in 2009 when HAGL Land reduced both wholesale and retail prices by around 40%.
At the Westa project in the Mo Lao Urban Zone in Hanoi’s Ha Dong, the price has gone down 25-35% compared with the previous VND26-28 million per square meter. Projects such as VP3 Linh Dam and FLC Landmark also slashed prices substantially.
According to Dr. Dinh The Hien, director of the Institute for Informatics Research and Applied Economics in HCMC, the sale-off and price reductions by investors are positive signals to the market. In his opinion, price reductions will help the housing market in HCMC and Hanoi to establish new price levels. Developers will not take risk to accept unreasonably high prices, and particularly, that will be a good chance for those who need to settle.
Buyers are still waiting
Now it is those who have needs that determine the market. But they are wise now; they deposit the money that will be used to buy homes in a bank while waiting for more home discounts. Potential buyers are also looking for really good projects, partly because they have more options.
The question “Has the real estate price reached the bottom?” has been answered differently by buyers, developers, and experts. Investors and developers said the real estate price has reached the bottom, but potential buyers do not believe so. The Hoang Anh Gia Lai developer once said that he could sell the apartments of a project in District 7 at a price 50% lower than those nearby but he can make some profit.
Moreover, buyers now can get more information about prices than before. They also know well that there is an oversupply at the moment. Some people who bought apartments in early 2012 felt that they suffered some losses.
Now, the price of a small apartment might be VND40-50 million lower. Larger apartments might be VND200-500 million lower.
The frozen real estate market is the result of the overheated growth period in which speculators and investors rushed to buy at any costs. Developers were selling their apartments at as much as VND50 million per square meter. The substantial reduction in prices at present is no surprise.
A rise in bankruptcies
Only one way to reduce the current substantial inventory is that real estate companies have to offer more discounts.
The real estate market may recover in five years’ time and the next two years will be the most difficult time. A majority of real estate companies could get worse off within the two coming years, Nguyen Nam Son, managing director of Vietnam Capital Partners’ Investment Fund, predicted at the Annual Investment Conference organized in August by Nhip Cau Dau Tu magazine.
If developers find life hard, speculators and investors will see themselves in the same boat given their much borrowing from banks.
Prices of many apartments, especially mid-end and high-end ones, will have to be reduced further. Deputy Minister of Construction Nguyen Tran Nam said that businesses should rescue themselves. “The current crisis faced by real estate businesses is due to unplanned development and a lack of control, which leads to the imbalance of financial sources, misuse of capital, and there is a lack of market research. Therefore, businesses now have to rescue themselves by restructuring their products, and resetting pricing strategy to make it fit most people’s ability to pay,” he said.
A positive sign is that the market is being restructured in this way. According to the second quarterly report of Savills Vietnam, the market share of C-class apartment supply source has increased by one percentage point to 80%, while A-class apartment supply source has dropped in the last five consecutive quarters, 3% per quarter on average.
