Vietnam actual property costs to move up as new regulations are enforced: mavens

Enforcement of the 2023 Housing Law, the 2023 Real Estate Business Law and the 2024 Land Law since August will see prices of certain real estate types continue to rise in the future, experts say.

Nguyen Quoc Anh, deputy general director of property website Batdongsan.com.vn, explained that land costs and new rules have put upward pressure on prices in both primary and secondary markets.

“More frequent updates of land prices, which will happen every year instead of every five years as it used to be, combined with removal of the land price framework will push up prices.

“Improved accuracy of land pricing resulting from removal of the deduction method, as well as application of four land valuation methods will also contribute to price hikes,” he said.

Additionally, the condition that land use rights can only be granted to dispute-free land will also lead to an increasing in prices. The new, more stringent requirements that have been set to decide clear status of land will make the acquisition of land use rights more difficult, he explained.

Not only are land prices rising, but prices of primary real estate are also increasing due to the rising costs of site clearance, Anh noted.

“The regulations on resettlement procedures will also drive up the prices of primary real estate as investors must arrange resettlement housing before land recovery and clearance. The conditions for resettlement houses are also clearer and more stringent, requiring them to be equivalent to or better than the residents’ previous homes. Resettlement areas must also have completed infrastructure.”

Anh pointed out that private homes will increase in value alongside land prices, and the prices of land plots will also increase as land division is tightened.

With greater required investments in infrastructure and amenities, urban residential projects will also establish new price levels.

Similarly, for commercial housing projects, rising costs throughout the entire development process will drive up apartment prices, Anh said.

Legal stipulations

In the preparation stage, the 2024 Land Law stipulates that organizations participating in bids must have capability and experience in project development.

The 2023 Real Estate Business Law requires investors to meet several financial conditions, including maintaining certain credit and bond debt ratios. For projects smaller than 20 hectares, the equity must be at least 20% of the total capital; for projects of 20 hectares or larger, the equity must be at least 15% of the total capital. Developers must demonstrate their ability to mobilize funds to execute their projects.

In the development stage, the 2023 Real Estate Business Law requires that before sales begin, the developer must disclose complete and accurate information about the project. Regarding project timelines, the 2024 Land Law imposes additional taxes for projects that do not put land into use or show a delay in land use.

In the sales phase, the 2023 Real Estate Business Law stipulates that the deposit cannot exceed 5% of the sale price. The first payment must be less than or equal to 30% of the product’s value, including the deposit. For lease-purchase agreements, the total of subsequent payments must be less than or equal to 50% (this used to be capped at 70% earlier).

‘Unnamed costs’

Do Thu Hang, senior director of advisory services at Savills Hanoi, believes that reducing real estate prices is a challenge for developers as they currently bear very high initial investment costs during a project’s development, including land, capital and financial costs.

“The lengthy process of obtaining investment licenses and project approvals increases investment costs, which drive up real estate prices,” she said.

Hang noted that the time from getting in-principle investment approval to obtaining a construction permit can be two years or more.

“Capital continues to flow into the project during this time, but the developer has no revenue, forcing it to increase the selling prices.”

A real estate company director in Ho Chi Minh City who declined to be named said: “To determine housing prices, we must take into account land and construction costs and the expected profit. If land costs do not decrease, developers cannot produce affordable housing, not to mention other costs like sales and financial expenses.”

He observed that land was increasingly scarce in major cities like Hanoi and HCMC, and if available, very expensive. Legal barriers are also a significant reason for the continuous increase in housing prices over the years, he said.

“The longer project procedures take, the higher investment costs rise, forcing businesses to incorporate these costs into selling prices. Homebuyers ultimately bear the burden. If developers want to reduce housing prices, they would have to lower their profit expectations. However, this is very difficult for them in the current context,” he stressed, noting that developers with land and projects in hand are the ones “controlling the game now.”

Dinh The Hien, a real estate expert, said that the recent increase in apartment prices in Hanoi and HCMC was normal and follows the rules of supply and demand. While there were some instances of “speculation and price inflation,” they have been corrected immediately.

Hien said the land plot segment required careful consideration as it has risen excessively compared to previous periods. For apartments, particularly in urban areas like Hanoi and HCMC, this trend was inevitable due to growing demand, he noted.

“In large cities, as the well-to-do population grows, the demand for housing will be greater. Developers must incur significant costs to establish projects and bear many ‘unnamed costs,’ so they cannot sell affordable housing,” Hien said.