VietNamNet Bridge – The government has every reason to encourage developing low cost housing projects. However, the overly high investments in the market segment may lead to the oversupply.

Lucrative market

According to a report of the Ministry of Construction, which says that by 2015, there are about 1.7 million people meeting housing problems in urban areas throughout the country. The same number of workers reportedly lack stable accommodation. Therefore, in order to meet the increasing demands, Vietnam needs to build 700,000 more flats, especially low-cost houses for low income earners.

Analysts also say the market has too many luxurious apartment projects, while it lacks the housing projects affordable to the majority of people. Having realized the high demand, real estate developers now rush to pour money into low cost house market segment. The overly hot investments may lead the oversupply, which would make the market segment frozen, the thing which is now happening with luxurious apartment market.

To date, 157 low cost housing projects have been implemented, which provide 68,500 apartments with the total investment capital of 20 trillion. The implementation of a series of projects has caused big worries: Is it really necessary to develop so many low cost projects at the same time? What will happen if the developers cannot arrange enough capital and have to leave the projects half done?

Lacking capital is the reason which has forced many real estate developers to suspend their projects. If this also happens with low cost housing projects, this would cause more serious consequences.

Analysts have also warned that the demand may change in some years.  At this moment, the demand is very high, but it cannot be satisfied with the current modest supply. But in the near future, when the supply gets more profuse, the demand may decrease.

Oversupply foreseeable

According to the Ministry of Construction, by the end of the first quarter of 2013, Vietnam had developed 3,742 housing projects with the estimated investment capital of 3,500 trillion. This seems to go beyond the capacity of enterprises to gather such big financial resources to implement all the projects. Even if, no one can be sure that all the products can be sold out. The sale would depend much on the buyers’ financial capability and the bank loans.

It may happen that many developers can only arrange enough capital to clear land for the projects’ sites, or build the foundation and then cannot fulfill the other items of the projects.

While the question about the supply remains unanswered, a new policy has been set up, which may make the oversupply even more serious.

According to Deputy Minister of Construction -- Nguyen Tran Nam, the new decree to be promulgated in some days will allow to build the apartment with the area of less than 30 square meters.

The existence of the “tiny” apartments is believed to do more harm than good. A standard family with four members will not be fit in such a small area. They would try to extend the area, which would damage the urban landscape and cause security problems to themselves. Therefore, encouraging enterprises to build 30 square meter apartments can only meet the immediate demands.

DNSG