Experts warn of apartment bubble spectre

May 20, 2024 | 10:50
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The rapid price increase in apartments in Hanoi and Ho Chi Minh City in the first four months of the year has left experts warning of a real estate bubble in the near future.

At a conference on the real estate market organised by the Ministry of Construction (MoC) in Hanoi last month, Dr. Le Xuan Nghia, a member of the National Monetary Policy Advisory Council, said that the apartment market was experiencing unbalanced supply and demand that could cause a property bubble.

Experts warn of apartment bubble spectre
Supply of affordable apartments is more scarce, and the number of luxury apartments continues to grow, Photo: Le Toan

Citing that many projects in Hanoi recorded a strong increase, with some projects increasing by more than 30 per cent, and prices up to more than VND100 million (around $4,160) per square metre, he said that he was sending out a warning as the situation needed to be brought under control.

“I have warned that the apartment segment is starting to show signs of being in a bubble, and it could happen in the near future if prices continue to rise. One day, when supply no longer exists, but demand continues to increase, the supply and demand curves will seem to run parallel and there will be no point where buyers and sellers can meet,” Nghia said.

Economist Dinh Trong Thinh added, “I recommend that management agencies thoroughly remove legal bottlenecks, increase the flow of products into the market, and increase competition. Social housing and low-cost housing are important solutions to avert the current crisis.”

The Vietnam Real Estate Association’s (VNREA) vice chairman Nguyen Van Dinh emphasised that in many areas there were no new projects, and many areas had seen price increases.

“These are unusual phenomena, fake and virtual markets. Investors need to be cautious when considering prices. Is the value when it is increasing appropriate, is it true to the real value? If it is not the real value but a bubble, the market is rebalancing, and more supply is flowing to the market, and it will drop rapidly,” he said.

General price rises

According to the MoC, apartment buildings in Hanoi have continuously increased this year. In Q1, new apartment prices reached an average of $2,500 per sq.m, with an increase seen over 21 consecutive quarters. Selling prices in Hanoi in Q1 recorded the highest annual price increase ever for apartments, up 17 per cent over the same period last year and reaching an average of more than $1,500 per sq.m.

Apartment prices in Ho Chi Minh City have also increased but at a slower speed, from 2-5 per cent because they underwent a strong increase 2-3 years ago. Projects such as The Estella increased by about 4.1 per cent, The Opera Residence increased by 3.9 per cent, The Art increased by 3.8 per cent, and My Khanh 3 increased by 3.6 per cent.

However, new launches see higher prices generally in Ho Chi Minh City. If in Hanoi, new projects like Lumi Hanoi or Masterise West Heights have popular selling prices ranging around $2,500 per sq.m., then in Ho Chi Minh City it is as much as $5,000.

For example, the Aurora in District 7 opened for sale with prices starting from $3,750 per sq.m. The Opus One and Global City, although with no official price yet, are rumoured to be $4,000 per sq.m.

Explaining the reason for the sharp increase in apartment prices, Nguyen Quoc Anh, deputy general director of, claimed there is a mismatch between supply and demand.

“Currently, the supply of apartments in Hanoi is very scarce, recent new projects only contribute about 20,000-30,000 apartments per year, while the real demand is up to 70,000-80,000 apartments,” Anh said.

Looking at the structure of the number of projects in the Ho Chi Minh City market in the past six years, luxury apartment projects increased from 49 projects to 170, mid-range apartment projects increased from 127 projects to 314, while the affordable segment increased only slightly, from 639 projects to 679.

Due to the scarcity of new supply, combined with high demand for real estate purchases, it is forecast that apartment prices in many areas will continue to increase, thereby leading to an increase in prices of old projects in the same area.

According to a report released by the Ho Chi Minh City Department of Construction in April, the apartment supply in the last months of the year will be limited due to the slow removal of legal obstacles for housing projects.

Serious imbalance

Real estate consultant Dinh Nguyen told VIR that the market continues to record a shortage of products below $1,250 per sq.m. “These products only account for 4 per cent of new supply and have been sold out in Hanoi. This leads to a common psychology among real estate investors of handling apartments with the belief that prices will continue to increase,” Nguyen said.

He added that the market supply is skewed towards high-end areas and there is a complete lack of affordable housing. “This phenomenon is often called the inverted pyramid, while people’s actual needs are in the downward pyramid model. This gap causes serious imbalance and many potential risks for the market,” Nguyen said.

In addition to buying apartments for living or investment purposes, apartments are also currently available for rent with high profits.

Figures from the VNREA showed that the occupancy rate of apartments for rent in Hanoi and Ho Chi Minh City is always high at over 80-90 per cent. High and stable profit margin with an average of 13 per cent per year. This rental yield gives investors a sustainable and constantly increasing cash flow every year.

To develop a sustainable real estate market, VNREA vice chairman Dinh said that local authorities, especially Hanoi and Ho Chi Minh City, needed to remove difficulties and promote a number of current projects that can bring more supply into the market, especially social and affordable housing.

“If we can do this, we can harmonise and balance the market, which is thirsty for supply and increasing prices,” Dinh said at a seminar on the issue in Hanoi last month.

He added local governments also need to promote social housing development. At the same time, projects that have problems with previously issued decrees on land prices and applicable finance must also be drastically resolved.

Nguyen Quoc Hiep, chairman of GP-Invest, said that legal problems were slowly being resolved, but new projects were limited and products coming to the market at a slow speed. Accordingly, any project that can complete its legality must be facilitated to be completed early to come on to the market.

“Along with that, social housing development will also contribute to cooling the apartment price hikes. Despite being paid attention by the government, social housing projects are still stuck. This is also a key point that needs to be resolved,” Hiep said.

“The legal issues of the project and social housing cannot both be resolved soon. It is necessary to create a mechanism to resolve the supply and demand mismatch by neutralising the ‘other land’ factor. We must promote pilots for businesses to deploy commercial housing projects through agreements to buy and build commercial housing on non-residential land.”

Do Quy Duy, CEO, NAC Real Estate Investment Fund

Recently, the apartment market in Hanoi recorded a high and fast price increase rate, even exceeding that of Ho Chi Minh City.

With the current price increase of Hanoi apartments, maybe in less than one year, the Hanoi market will establish a price range similar to those in Ho Chi Minh City. Mid-end apartments will have prices ranging from $1,460 to $1,660 per square metre, high-end apartments will be around $2,900 to $3,330 per sq.m, and premium ones will reach $5,000-5,800 per sq.m. This has been the basic price of apartments in Ho Chi Minh City in the past two years.

With this price, people also have to get used to the price of $290,000-330,000 for a 100 sq.m apartment in the inner city. This price is truly beyond the reach of the majority of people in the capital.

Dinh Van Thanh, private realtor, Hanoi

The increase in apartment prices partly reflects the relationship between supply and demand. In Hanoi, supply is not enough to meet demand, leading to the phenomenon of prices still going up.

I predict that primary apartment selling prices will continue to climb by an average of about 3-8 per cent. The reason is that the supply has not yet been resolved immediately, while the number of newly licensed commercial housing projects is a few, especially in the affordable and mid-range segments.

If the rate of house price growth and income growth are not close to each other, home ownership for many people will be even more difficult.

Investors and real estate buyers need to spend more time observing market developments in the upcoming period, to give the final decision.

Huynh Phuoc Nghia, economist

To stabilise house prices, it is necessary to build a complete database, both for the primary and secondary market. In the quarterly real estate market report of the Ministry of Construction, there is only information about primary market prices, while information about secondary markets, purchase and resale transaction prices have not yet provided.

Therefore, we need a more diverse and transparent real estate index to analyse price fluctuations, number of transactions, and market liquidity.

Based on this database, people can access information about real estate products easier and more transparent without having to go through any intermediaries.

Since 2015, the government has clearly stipulated responsibilities of agencies, organisations, and individuals in building, managing, and using this information system on housing and the real estate market. However, the implementation process and the collection and synthesis of information face many difficulties and have not met the schedule due to requiring a huge amount of data.

For the market to be transparent, it requires a system to collect and update information about real estate, including the cooperation of state management agencies, associations, and businesses.

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