Materials costs forcing developers to reduce offerings

Developers wanted to hit the ground running after lockdowns, but costs of materials are hindering them, Le Toan

According to Ngo Quang Phuc, general director of Phu Dong Real Estate JSC, rising raw material prices are a big problem in the current market. “Construction material is one of five types of costs that affect the price of a real estate product, in which iron and steel costs account for 15-20 per cent. If the price of construction materials increases, it forces developers to increase the selling price. This will make buyers think twice when making a decision,” said Phuc.

Phuc said that creating an affordable supply for buyers is not easy when the factors that help create product prices have increased continuously. “The rise in input costs is forcing developers to reduce the space of every product, and reducing the value accordingly,” he said.

A representative from Hung Thinh Land said that in addition to materials hikes, a rise in petrol prices had led to many other costs, such as labour and services. “This makes many developers and contractors fall into lousy situations and many are prolonging progress and waiting for the price to drop to reduce losses,” the representative said.

Dinh Hoang, a real estate expert in Ho Chi Minh City, added that real estate projects are now at risk of delay. “Developers would be fined by the buyers while contractors are struggling with adjusting their schedule to minimise losses,” Hoang said.

According to the Ministry of Construction, in the last quarter of 2021, apartment prices were two per cent, 4 per cent and 5 per cent higher in Ho Chi Minh City, and Binh Duong and Ba Ria-Vung Tau provinces, respectively. Experts predict that the price of construction works in 2022 will be even more expensive.

Since the beginning of 2021, cement has risen in price three times, moving from around $2 to as much as $6.50 per tonne. Iron and steel have also continuously increased in price and show no sign of cooling down. According to the Vietnam Steel Association, iron and steel costs have risen since the beginning of this year from around $10 to $13 per tonne. The association predicts that steel prices will continue to increase this year as many real estate projects try to restart after delays.

In addition, many large-scale public investment projects such as the North-South Expressway, ring roads, Long Thanh International Airport, and many others will also push steel consumption sharply.

Since the beginning of the year, real estate prices in many cities and provinces have continued to move upwards. In January alone, apartment prices in Hanoi and Ho Chi Minh City increased by 4.6 and 1.8 per cent, respectively, compared to the previous three months.

The price of villas and landed houses increased sharply at 38 per cent and 27 per cent in Hanoi’s Long Bien and Gia Lam districts, respectively, compared to three months ago. The same building types in Ho Chi Minh City also saw an increase, with the most significant rise reported in District 7 at 24 per cent and Nha Be district at 22 per cent.

Figures from Savills Vietnam note that mid-end apartment units in Ho Chi Minh City have increased around 30 per cent compared to 2021, to around $2,600 per square metre, while some projects have increased their prices by over 10 per cent in just the last two months.