Easing Housing Crunch To Cost US$100 Billion

VNRE - Vietnam needs more than 2.2 trillion VND (US$110 billion) in the next five years to develop housing, Vietnam News Agency cited a report recently released by Ministry of Construction.

Ministry experts came up with the figure by assigning 21.5 square metres of floor space per capita.

The report analysed data from last year's general demographic census which projected that the country's total population would be more than 90 million in the next five years.

This increased population would need about 2 million square metres of housing in the next five years.

Although Vietnam ranks eighth out of the 10 Asean countries in terms of the percentage of the population living in urban areas, its urban population has experienced an average annual growth rate of 3.4 percent.

Currently, around 14 percent of city-dwellers rent while the rate for the population as a whole is 6.5 percent.

The report pointed out that makeshift housing is on the rise in cities across the country and attributed this to an increasing number of migrants from the countryside who need simple housing.

Housing for the low-income sector is a now a pressing issue and needs more Government's attention, the report noted.

Policy incentives are needed to encourage housing developers to build low-cost rental apartments to meet housing demand and stabilise housing and land prices, say analysts.

The Ministry of Construction reported last year that 11,458 families in the country were homeless. The figure for urban areas was 4,502.

The Government does have several policies in place to address the problem, most of which focus on helping low-income earners find places to live.

The policies also include a reduction in, or waiver of, land-use fees as well as cheap bank loans for both property developers and buyers. But these measures have been only moderately successful.

The rental market for low-cost apartments could be very profitable, ministry analysts said, because most low-income families could not afford to buy houses despite Government assistance.

According to ministry analysts, renting out low-cost housing is even more profitable than renting out luxury apartments. A 50-square-meter apartment costs around 400 million VND (US$20,500) to build and fetches a rent of 3 million to 5 million VND, meaning investors can recoup their money in 80 months. In comparison, if a luxury apartment costs 3.5 billion VND (US$175 million), the rent needs to be 43.75 million VND to recoup the investment in the same period.

Le Hoang Chau, chairman of the HCM City Real Estate Association, said that while in the past most Vietnamese preferred owning property to renting, times had changed.

Most people who rented are young and single or migrants, the number of which has increased sharply in recent years, he said.

If there is housing for rent with reasonable facilities at 3 million to 5 million VND, people will be willing to rent them for long periods, he said.

While many firms are building houses for lease, they tend to focus on upmarket properties where the rent is 20 million VND a month, he said, adding that they ignore the low cost end of the market.

The ministry analysts admitted there were many barriers preventing investors from entering the low-cost segment of the market.

Capital is always a major problem for Vietnamese developers who prefer selling their apartments to leasing them as returns are quicker for sales.

An HCM City-based property investor said despite seeing the great potential of the low-priced segment of the housing market he could do nothing about it. He said it would take him decades to recoup his investment and most of his funding came from bank loans.

Building houses for rent will not only help meet the country's housing needs but also remove volatility in land and housing prices, according to one official from the Ministry of Construction.

The Ministry has recently called for policies to encourage development of rental apartments, he said.

Ministry analysts said the Government should allow developers to collect rent on land, eliminating the need to buy expensive land and clear it.

Investors should also be given assistance to get cheap loans, they added.

Source: Bermana | MOC