VietNamNet Bridge - The low-cost real estate market has become more competitive with big property companies that usually specialize in developing high-end products.

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Vingroup, Him Lam Land, Keppel Land, FLC and Vihajico, well known for their luxury apartment and resort projects, all have joined the low-cost market segment, which was in the past dominated by state-owned enterprises (Viglacera, HUD and Vinaconex) and a few private-run companies (Nam Long).

Low-cost apartments are understood as the ones priced at below VND2 billion.

Vingroup has announced a plan to build 300,000 apartments with prices from VND700 million in many large cities and provinces in the next five years.

Prior to that, Vihajico launched 5,000 apartments earlier this year at West Bay and Aqua Bay projects in Ecopark. The developer said 2,800 apartments have been sold so far.

A lot of other big players have also joined the field, including Him Lam with the plan to develop 2,000 apartments in the eastern part of HCMC and Keppel Land with the plan to develop low-cost apartments in areas not too far from the city’s center. 

If investors implement the announced projects on schedule, the supply would increase by 74 percent in the next three years. 
Meanwhile, FLC is developing projects in Ha Dong, a new district of Hanoi, and BID Vietnam is focusing on developing Edu-home chain with 4,200 apartments from now to 2022.

In previous years, big players such as Vingroup and Novaland only developed high-end products. The number of apartments marketed by the two groups alone in 2015 accounted for 50 percent of the total apartments available. Vingroup alone successfully sold 12,600 apartments.

Analysts said real estate developers like Vingroup and Novaland focused on high-end products because the market segment brought high profits. 

Regina Lim from Jones Lang LaSalle said the EBITDA (earnings before interest, taxes, depreciation, and amortization) of high-end projects is 25-30 percent, while the figure is just 10 percent for low-cost projects.

According to Lim, the proportion of high-end apartments increased from 10 percent to 27 percent in 2015 and 44 percent of total apartments in the first half of 2016. 

If investors implement the announced projects on schedule, the supply would increase by 74 percent in the next three years. 

As the supply has risen quickly, analysts have warned the market would see oversupply in the time to come. 

Minister of Construction Pham Hong Ha, at a working session with the Vietnam Real Estate Association, also warned about the risk.

Analysts believe that this could be the reason big real estate developers have decided to develop low-cost apartments. 

It is estimated that 70 percent of the current demand is for low-cost apartments. 

The apartments priced at VND2 billion and higher are unaffordable to the majority of Vietnamese.

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