Apartments to be downsized

4 Oct
Photo: Trung Hoa – Nhan Chinh Urban, Hanoi
VNREBefore the actual market demand and requests from businesses, the Ministry of Construction has asked the Government to adopt solutions to real estate market management. Notable contents include the construction of smaller apartments and the development of house-leasing market. However, property developers want smaller apartments to boost liquidity.

According to experts, real estate prices in Hanoi have reduced by 35 percent but the trading remains quiet. This reality is partly attributed to tightened credit policy, the loss of public interest in this channel, and the loss of confidence on account of market volatility. However, house-needing people are still unable to afford apartments, leading to a continuous drop in housing prices.

Many projects have sold at breakeven prices or even lower. For instance, Golden Palace invested by Mai Linh Group has a basis price of VND35 million (US$1,700) per square metre but some investors are selling below this point although they previously purchased at over US$2,200 per square metre, excluding VAT. Investors in Mulberry Lane developed by Hoang Thanh Thang Long Company are offering apartments at approximately US$1,650 per square metre, compared with previously US$2,300 (exclusive of VAT).

In Ho Chi Minh City where housing prices are “softer” than in Hanoi and the market is always active, the business community last year proposed the Ministry of Construction to approve the small apartment model, even with an area of 20 square metres for single buyers, young families and retirees. And, one of the most important reasons is lower prices will boost the market demand.

Such a small housing model has not been ratified because authorities fear the formation of high-rise slump houses and it is contrary to State regulations. However, the market demand has affected policymakers.

In its report sent to the Government, the Ministry of Construction proposed the ratification of medium apartment model (from 70 to 90 square metres) and small apartment model (less than 70 square metres). It also proposed abolishing regulations on the ratio of small apartments in housing projects as stipulated in the Apartment Construction Standards. In big cities like Hanoi and HCM City, apartment buildings will account for 80 percent or more and deluxe housing (villas, semidetached houses with an individual from 120 square metres onwards) will be reduced to 20 percent or less of newly-built commercial housing units.

The ministry’s proposals, if approved, will allow businesses to design and build smaller apartments and build more of such apartments in their projects. However, they seem to be dissatisfied. Thus, following the proposals submitted to the Government, the Ho Chi Minh City Real Estate Association (Horea) continued to request the ministry to allow companies to build even smaller apartments with a minimum area of 30 square metres.

According Horea, the HCM City real estate market is in crisis of both redundancy and deficiency. It lacks smaller apartments for a vast majority of customers who cannot afford deluxe accommodations. If small apartment buildings are allowed to be built, people will have more chance to access affordable properties. Even, an 80-square metre apartment may be divided into two. Then, companies can sell their unsellable large flats and the market will regain growth momentum and put an end to a long lacklustre period. According to surveys, the demand for small apartments is very high in major cities and overwhelms luxury segments. However, for a long time, investors only built high-grade wide apartments for wealthy people. When their market forecasts on luxury buildings were wrong, they started to cling to the market demand. A big property investor said “The limitation on small, low-priced apartments has distorted the development of real estate market, and is a cause of speculation.”

The ministry requested localities to build affordable housing for low-income earners. It also proposed the Government instruct credit institutions to lend highly liquid projects and social housing projects for low-income earners.

Reported by Le Minh | VCCI News

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