VietNamNet Bridge – Believing that it is better to tighten supply to help reduce inventories, the Ministry of Construction (MIC) is planning to not grant more licenses to housing projects.
Minister of Construction Trinh Dinh Dung has proposed that the government instruct local authorities not to license more housing and urban projects in 2014, as a mean to reviving the lackluster real estate market.
Nguyen Manh Ha, Head of the MIC’s House and Real Estate Market Management Department, said that with existing products remaining unsellable, there is no need to license more projects.
A ministry report disclosed that over 4,000 new urban area projects were developed by the end of 2013. These projects cover 102,000 hectares in land area and represent a total investment of VND4,500 trillion. Of this, the inventories’ value is VND94.5 trillion.
“Given such conditions, it is necessary to forestall new projects to ease the current difficulties,” Ha said.
The MIC’s intention faces strong opposition from real estate developers. Dr Le Chi Hieu, President of ThuDuc House JSC, said the MIC’s plan contravenes the basic rules of a market economy, in which businesses have the right to make investments and take responsibility for their decisions.
“Businesses must think carefully before making investment decisions. They don’t invest in the projects which they find unfeasible,” he said. “Therefore, I think the state’s intervention is unnecessary in this case”.
Nguyen Van Duc, Deputy Director of Dat Lanh Real Estate Corporation, pointed out three problems in the MIC’s plan.
First, the current laws do not prohibit developing housing projects for commercial purposes.
Second, the MIC justifies its attempts to tighten the housing supply based on its claims that inventories are overly high. At the same time, a report released by the ministry earlier this year asserted that inventories were on the decline, a signal that the market is, in fact, warming up.
“Why is the MIC trying to proscribe new projects, just when the market is warming up?” Duc questioned.
Third, the VND30 trillion bailout initiated by the government to help defrost the property market has obviously failed completely, asserts Duc. Official reports all showed the very low disbursement rates.
One of the causes of the failure, according to MIC, was the lack of products affordable by the majority of people who really have demand for accommodations. If so, the MIC should be creating more favorable conditions for real estate developers to launch more suitable products on the market, rather than attempting to block the supply.
Dr. Pham Sy Liem, Deputy Chair of the Vietnam Construction Federation, also insisted that the market performs in accordance with the basic principle of supply and demand, something that must not be overly regulated by permissions or bans by the state.
There are many different segments in the real estate market. At present, the unsold products are the high-end ones, while Vietnam is still in short supply of popular apartments, priced at below VND15 million per square meter or VND1 billion per apartment.
Says Dr. Liem, “There is no reason to prohibit the manufacture of sandals just because we’re awash in superfluous boots”.