Land prices too high

At a bidding session for four land plots in the central area of Thu Thiem New Urban Area on December 10, the plot fell into the hands of Ngoi Sao Viet Real Estate, which paid VND24.5 trillion, or 8.3 times higher than the initial price. This means that one square meter of land there is valued at VND2.4 billion.

The land plot was sold to Dream Public which paid VND3.82 trillion, or 6.6 times higher than the starting price, while Binh Minh Trading obtained the land plot for VND5.026 trillion, or seven times higher.

A real estate expert warned that with such land prices, the price of apartments will be very high. The 6,446 square meter land plot sold to Dream Public, for example, has the land cost of VND457 million per square meter for every apartment.

The land plot, covering an area of 10,059.7 square meters, obtained by a subsidiary of Tan Hoang Minh Group, was bought at VND24.5 trillion, which meant that the land cost price for every apartment is VND42.9 billion, or VND363 million per square meter.

As for the land plot with the area of 5,000 square meters that Binh Minh Trading won with the price of VND5.026 trillion, or 7 times higher than the starting price, the company had to pay VND1 billion for every square meter of land.

The four land lots are located in Functional Area No 3 in Thu Thiem New Urban Area, next to Vong Cung Boulevard, in HCM City's Thu Duc City.

With the price levels, the land prices in the central area of HCM City are nearly the same as Tokyo and Hong Kong, Asian financial and trade centers, considered the most expensive areas in the world.

A survey found that with $1 million, one can buy 16 square meters in Monaco, 22 square meters in Hong Kong, 54 square meters in Shanghai, 58 square meters in Los Angeles and 66 square meters in Beijing, and only 10 square meters in Vietnam.

Meanwhile, there is a big difference in terms of income from property exploitation and from finance - business in HCM City.

What’s next?

The good news is that the high price levels have brought a lot of revenue to the city’s budget. However, experts point out that this is worrying rather than positive, because the land prices are overly high, which will push the prices of apartments and finished products up.

The good news is that the high price levels have brought a lot of revenue to the city’s budget. However, experts point out that this is worrying rather than positive, because the land prices are overly high, which will push the prices of apartments and finished products up.

Dang Hung Vo, a real estate expert, commented that in HCM City, only land in the central area in district 1 is valued at over VND1 billion per square meter. Meanwhile, Thu Thiem is considered an area with development potential in the future. Therefore, it’s unreasonable that land prices there are even twice more expensive than the most expensive area of the city.

Vo pointed out that Nguyen Hue, Le Loi and Dong Khoi streets are considered the ‘commercial hub’ of HCM City, so land prices there are the most expensive. If Thu Thiem is even more expensive, this is abnormal.

Vo assumes that the price increase is artificial but he said the final conclusion will be made when the businesses winning the bids pay enough money as committed.

Tran Khanh Quang, an expert in this area, commented that with the bidding prices of the four land plots, a new price ground has been set and the risk of a new land fever is visible.

According to Quang, real estate price increases previously occurred only in some areas and projects. However, as the land plots in Thu Thiem have been put into public auction, this means an announcement of the establishment of a new price ground. He warned of a new price fever in Thu Duc City in particular and the southern market in general.

Nguyen Tri Hieu, an economist, said the real estate price will not increase forever and the escalation will stop when the price reaches a certain level. If the pandemic developments are complicated and the economy falls into difficulty, the prices may drop dramatically. If so, this may lead to a market collapse.

Some analysts have warned of a real estate bubble. They said the bubble does not exist now, when the demand is high and the number of buyers is high. However, the phenomenon may occur in the future once demand decreases amid economic difficulties.

Asked about the real estate bubble, Hieu said this happens when real estate prices increase too rapidly within one year. A 10 percent price increase is normal, but 20-30 percent increase within 12 months could be the sign of a bubble.

“If the prices increase too sharply, this will go beyond buyers’ financial capability. If so, demand will decrease and the bubble will burst,” he said.

Nghia noted that the current supply shortage, which is attributed to legal problems and overlapping regulations. However, he believes it is also occurring because businesses are collecting land for speculation.

In 2015, Tan Hoang Minh won a bid to buy a land plot at No 23 Le Duan in district 1, HCM City at VND1.43 trillion, but later it did not pay money to get the land. 

Duy Anh

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