High prices major reason for low purchasing power in Vietnam realty market

By Vu Pham, Minh Hue
Fri, June 28, 2024 | 3:22 pm GMT+7

Now’s a good time to buy a house, experts opine, but purchasing power remains low as prices do not fit the pockets of a majority of those who need houses.

This could prove a dampener despite Vietnam’s real estate market showing “positive signs,” they said.

 Prospective customers study an apartment project model. Photo by The Investor/Vu Pham.

Prospective customers study an apartment project model. Photo by The Investor/Vu Pham.

A survey by leading real estate website Batdongsan.com.vn has found that in Q1 of this year, about 55% of the respondents expected real estate prices to decrease, 24% thought they would remain stable and 21% felt they would continue to increase.

Those who believed that real estate prices would continue to fall in Q2 climbed to 79%, 8% expected stable prices and only 12% felt they would increase further.

Le Bao Long, director of strategy at Batdongsan.com.vn, said real estate buyers are still “in a state of waiting,” with most needing clearer positive signals before deciding to return to the market.

"Buyers still expect prices to further decline and that new policies and legal changes will make the market more positive. The psychology of waiting has dominated the real estate market in the first half of this year," he noted

For Q2, although the level of satisfaction with the market seems to increase with home loan interest rates dropping over the previous quarter, the market index as well as people's ability to buy a house has shown a quarter-on-quarter decline. As a result, interest in the real estate market has not improved, Long said.

A Batdongsan.com.vn report says real estate transactions in the “past year” were led by middle-aged customers and those who did not use any financial leverage. It says 42% of customers aged 40-59 said they had owned a property in the past year.

48% of customers who bought real estate in this period did not use financial leverage or borrow money from banks. Only 28% of buyers used loans, compared to 33% recorded in the previous quarter, it said, without clarifying the chronology.

The report also says that home buyers are tending to shift from the primary market to the secondary market. In Q1, up to 68% of home buyers chose to buy primary real estate, but in Q2, this fell to 55%.

Customers looking for houses in the secondary market grew from 33% in Q1 to more than 45% in Q2. The increasing trend of buying secondary real estate “is considered normal since the market has lacked primary supply for a long time,” the report says.

In Q1 and Q2 this year, there were less than 2,000 new apartments offered for sale in Hanoi and Ho Chi Minh City.

Notably, along with the lack of new supply, Batdongsan.com.vn experts believe that the unvarying primary supply has greatly affected customer demand.

Most primary projects launched recently are in the high-end and luxury segments, while current real demand is mostly in the mid-range and affordable segments, with prices of below VND50 million ($1,965) per square meter.

Although real estate experts and businesses say that this year is a "golden" time to buy a house with developers offering many good incentives, people's incomes have not improved much and affordable housing has gradually "disappeared", greatly affecting purchasing power, the report emphasizes.

Dinh Minh Tuan, southern regional director of Batdongsan.com.vn, said buyers should only consider buying a house in Hanoi and Ho Chi Minh City if they have a monthly income of at least VND30 million ($1,180).

Furthermore, data compiled by the website also shows that real estate prices do not tend to decrease in Q2. Compared to the same period in 2023, prices in Hanoi increased 31% on average for apartments, 19% for land plots, 32% for private houses, and 18% for villas.

In the HCMC market, although liquidity remains weak, property prices have tended to move sideways in Q2 of this year. While land plots, private houses and townhouses have not recorded any fall in prices, the apartment segment has seen a year-on-year increase of 6%.

Experts predict that real estate prices will continue to grow in the coming time; by about 20% in 2024 and 5-6% in 2025 in Hanoi; and 4% each year from now until 2026 in HCMC.

They explain that increasingly scarce supply will cause house prices to increase sharply. Housing prices will keep rising even when supply improves because of many other factors, the report cites them as saying.

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