Speculation rife in HCMC real estate market

Many real estate developers in Ho Chi Minh City are delaying executing projects despite having already procured land to build on for years.

A report by the municipal departments of natural resources and environment and construction shows that from 2016-2022, the city had registered 1,532 projects for land use rights, including urban areas, commercial and social housing projects, and public investment developments.

Of which, 451 projects had been completed, 708 were in progress, and 357 had yet to be started even though their land use rights had been granted more than three years ago.

The HCMC Real Estate Association (HoREA) said that suspended projects had affected the city’s socio-economic development goals as well as the legitimate rights and interests of residents who had given up their land.

Site clearance compensation, mainly due to investors' poor financial capability, was the major reason behind the delays.

Normally, the main investor is responsible for site clearance compensation and investment in building technical infrastructure like roads, water, electricity and social infrastructure facilities. Meanwhile, project component investors are obliged to make financial contributions, directly invest in construction work, and trade their products.

However, very few projects follow this model because most project investors have weak financial capacity. They are unable to pay site clearance compensation, leaving many projects waiting to get off the ground for years.

Among those is the 154-hectare Binh Trung Dong-Cat Lai residential area project, with Phu Nhuan Housing Construction and Trading Company Limited as the main investor, and 14 additional investors. It has been in the pipeline for 20 years. The 82.52-hectare Bac Rach Chiec residential area in Phuoc Long A and Phuoc Binh wards of Thu Duc city, with Real Estate 10 Joint Stock Company as the main investor, and two additional project investors, is also in the same situation.

Some businesses in HCMC have also registered land to develop, but are instead speculating on the price in order to make a profit. The West Intela and High Intela projects in District 8, owned by LDG Group, are prime examples.

In 2017 and 2018, when the apartment and commercial housing projects were put on the market, the investor advertised smart apartment projects with prime locations and affordable prices, suitable for first-time buyers.

Buying in to the apparently reputable firm’s offer, buyers came flooding in to live their dreams of owning a property in the southern economic hub. Many put down 20% deposits to get in early, but as yet, only the foundations of the projects have been completed.

A similar case is a 152-hectare project belonging to K.A Group located in the Cat Lai urban area near Cat Lai port in Thu Duc city. In 2019, when buyers registered for apartments, the developer said they would be available in the fourth quarter of 2022. However, the project area remains a vacant lot surrounded by corrugated iron.

Nguyen Toan Thang, director of the municipal Department of Natural Resources and Environment, told the HCMC People’s Council in early December 2022 that local authorities will strictly deal with any projects that have been delayed without rational reasons.

The department proposed authorized agencies cancel 169 projects and monitor the remaining projects in 2023.

Eliminating land speculation

Director of a real estate business in HCMC, told The Investor that demand for housing in Ho Chi Minh City is huge, but supply is failing to meet the demand.

A number of businesses have procured land to develop projects but had not even started construction. "Many property developers have to go to the periphery to find land funds for project development, because there is a scarcity of land in the inner city. Some have to buy land at auctions for inflated prices, resulting in huge project investment costs," said the executive, declining to be named.

According to HoREA chairman Le Hoang Chau, many areas in the city center are not used to develop business, commercial or service establishments. Without creating jobs and contributing to the city's economy, the land use value is zero.

“Even some businesses that have managed to obtain land have delayed their projects, leading to signs of land speculation and a waste of resources,” he said.

The HoREA chairman proposed a high tax on abandoned land and delayed projects to eliminate speculation and urge enterprises to raise capital to implement their projects or transfer them to other capable units.