Experts say developers could improve affordability by lowering profit targets and shifting toward housing that meets real demand.

Breaking down the costs behind home prices

Vietnam's property prices are shaped by multiple cost components, as well as developers' brand reputation, profit expectations and speculative activity, according to Nguyen Van Dinh, Vice Chairman of the Vietnam Real Estate Association and Chairman of the Vietnam Association of Realtors.

Construction accounts for the largest share of property development costs, at approximately 45-60%, while land-related expenses, including compensation, site clearance and financial obligations associated with land use, represent around 30-35%.

Other expenses include investment procedures at 10-15%, borrowing costs at 8-15%, infrastructure development at 5-7% and management costs at 2-5%.

Dinh noted that prolonged administrative procedures can increase financing and operating expenses, adding further pressure to selling prices.

Meanwhile, property selling prices are influenced by four main groups of factors: production costs, brand value, additional expenses resulting from price inflation and developers' expected profit margins.

Brand value encompasses a developer's reputation, project design and construction progress, while cost escalation can arise during lengthy project development periods.

Actual transaction prices may also exceed developers' initial asking prices because of speculative resales.

Investors generally seek returns higher than bank interest rates plus inflation, often driven by expectations of further property price increases.

When anticipated profits become disconnected from a property's actual use value, prices risk becoming inflated, making homes increasingly unaffordable for genuine buyers and raising liquidity risks if market conditions reverse.

Speaking at a recent property pricing seminar, Hoang Thu Hang, Deputy Director of the Housing and Real Estate Market Management Department under Vietnam's Ministry of Construction, said high property prices stem from several causes and cannot be attributed entirely to land costs.

According to Hang, determining land prices according to market principles, at a time when land values are already elevated, has increased land-use payments for many projects, directly affecting their selling prices.

Legal and regulatory obstacles have also prolonged project preparation and implementation.

As a result, developers must service loans for longer periods while incurring additional financing and operating expenses, which may ultimately be passed on to homebuyers.

Speculation is another source of pressure on the property market.

Some investors borrow money to purchase properties in anticipation of price appreciation rather than to meet genuine housing needs.

At the same time, rising lending rates make it harder for households to secure mortgages, while leveraged property investors face growing repayment pressure when market liquidity weakens.

Hang said elevated property prices reflect a combination of land costs, investment procedures, financing expenses, speculation and imbalances between housing market segments.

Lower profit expectations and a better housing mix could unlock demand

One of the major contradictions in Vietnam's housing market is that demand remains substantial, yet homes offering suitable locations, quality and prices are still in short supply.

Hang argued that bringing property prices closer to buyers' financial capacity depends first and foremost on decisions made by developers themselves.

She urged businesses to rethink their investment and development strategies, focusing on three main priorities.

First, developers should restructure their housing portfolios and target market segments more carefully.

Rather than concentrating on projects promising the highest returns, companies should thoroughly assess actual demand before launching new developments.

Hang observed signs of oversupply in certain mid-range and high-end housing segments, while affordable homes for middle-income households and owner-occupiers remain scarce.

Continuing to develop properties priced beyond buyers' financial capacity could leave developers struggling to sell units, recover invested capital and generate sufficient cash flow for subsequent projects.

Second, developers should shift their focus from maximizing selling prices to maximizing cash flow.

Instead of maintaining high prices to secure large profits on individual units, companies could consider more reasonable pricing strategies that accelerate sales, recover capital sooner and reduce borrowing costs.

Hang offered an example of a developer targeting a 30% profit margin on a project but facing a lengthy capital recovery period.

Alternatively, the company could accept a profit margin of around 15%, sell units more quickly and move on to new projects.

This approach could shorten the time capital remains tied up in a development, reduce financing expenses and support more stable business operations.

Third, developers should expand their involvement in social housing and rental housing.

These are priority segments under government housing policies, particularly for low- and middle-income households.

Hang encouraged property companies to work proactively with regulatory agencies and local authorities to develop homes that match people's purchasing power.

Improving policy mechanisms and resolving legal obstacles are also essential to increasing supply in these segments.

According to the deputy director, restructuring housing portfolios, adjusting pricing strategies and participating in social housing development could help businesses improve liquidity and ease financial pressure.

Such measures could also address the mismatch between housing supply and demand, supporting a more stable and sustainable property market.

During a group discussion on October 19 concerning proposed amendments to the Law on Property Auctions, Prime Minister Le Minh Hung emphasized the need for consistency between auction legislation and other relevant laws, including those governing land, housing, real estate business and public procurement.

He said a key objective was to strengthen the management, regulation and oversight of the property market, particularly social housing and rental accommodation.

The aim is to ensure that workers and eligible policy beneficiaries can access housing at affordable prices.

Hong Khanh