Growth In Economy Calls For Rise In Living Standards | Vietcetera
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Economy

Growth In Economy Calls For Rise In Living Standards

Vietnam’s economic progress along with a rapidly expanding middle class are the primary drivers of the expanding housing market and its increasing prices.

Growth In Economy Calls For Rise In Living Standards

As the economy rises, so does the living standard of the people. | Source: Vietcetera

Economic growth is defined as an increase in the productive potential of an economy — measured in percentage growth of GDP year on year. In the first quarter of 2021, Vietnam recorded YoY GDP growth of 4.5%, and is expected to grow even more strongly by 6.6%.

As the economy rises, so does the living standard of the people. An increase in the GDP means there is more money in the domestic economy. 

This also means that businesses can make more profits, and therefore can pay employees higher wages, or even hire more employees. Which automatically leads to a rise in GDP per capita/household. With disposable income expanding, people’s purchasing power also grows — they can now buy or get more products and services.

David Hodkinson, Studio Noor’s design director said that the developments of hotels are a sign of a booming industry, despite the pandemic. To him, it makes total sense to build and develop during this period when the occupancy is down because one way or another, it will come back. 

The same goes for residential real estate.

Constructions along the streets of D. Tran Hung Dao and Nguyen Huu Canh are just two of the major developments seen in the central business district of Ho Chi Minh City. 

In the US, “home prices are overheated, mortgage rates are rising, the supply of homes for sale is anemic and consumer confidence in the housing market is falling,” CNBC reported. 

A year ago, home sales dove to the ground. No one wanted to buy or sell or even enter any real estate deal, given all the physical and economic uncertainty that the pandemic brought. But just a few months, housing hit the gas pedal, and prices followed.

Vietnam is seeing the same trend, except there’s no apparent drop in consumer confidence. 

According to Cushman & Wakefield, in 2020 alone, apartment prices in HCMC have risen in response to limited investment options outside of the housing market, and grew by a staggering 90% in three years from 2017 to 2020, including by 12.8%. 

While the expat community and foreign investors are pushing the market, the majority of the growth comes from the locals. For that reason, Vietnam’s economic progress along with a rapidly expanding middle class are the primary drivers for the expanding housing market, and its increasing prices.

Affordable housing is disappearing

To set a benchmark, luxury apartments in prime HCMC locations like District 1 and Thu Duc City have hit VND100-400 million ($4,300-17,400) per square meter. With the maximum price, one can already buy a single unit in Singapore, or two in Hangzhou, China, and or even three in Bangkok, Thailand. That much, yes. 

Realistically, apartments priced above $2500 per square meter are grade A apartments, those priced $1500-2500 are grade B, and those under $1500 are classified as grade C, Jones Lang LaSalle real estate consultancy’s report reads. 

Not only that, the average price of grade C apartments doubled from around VND16 million ($690) per square meter in 2013 to VND32 million ($1400) in 2020. It has risen by another 5-10 % in 2021.

In 2017, B and C apartments used to account for 78% of supply in HCMC, according to real estate consultancy DKRA Vietnam. But last year 69% of the supply consisted of grade A units, and there was no new grade C apartment project at all, a situation that persisted in the first quarter of 2021.

In addition, according to Numbeo’s data, the price per square meter to buy an apartment in HCMC Center is $3,078.72, the 30th most expensive apartment pricing in Asia, higher than Malaysia’s Kuala Lumpur and Hanoi. 

Thus, finding affordable housing is becoming a rising problem in the country. As per the Ho Chi Minh City Real Estate Association (HoREA), it has become impossible to find apartments priced below VND35 million ($1500) per square meter in HCMC. 

Even in neighboring provinces like Binh Duong and Dong Nai, prices have shot up to VND33-45 million ($1400-$1950).

Chairman of HoREA Le Hoang Chau said that some apartment projects initially priced VND30-33 million ($1300-$1400) per square meter are now sold at VND50-55 million ($2,100-$2,400), making it much harder for people who need an apartment to live in.

CEO of Viet An Hoa Real Estate Investment JSC Tran Khanh Quang told local media that because of the complicated procedures of acquiring land for real estate projects, developers are forced to increase the prices. Not to mention how high the demand is. 

Nguyen Le Ngoc Hoan, a lecturer in the finance department at the HCMC Open University told VnExpress that the Vietnamese property market is rife with speculation, with 60-70% of HCMC apartments being bought as an investment, not for living in. Adding the government needs to slap high property taxes to this kind of investment.

"The more properties people own, the more taxes they should have to pay. The tax on the second unit must be higher than the first. High taxes should be imposed on properties that are left vacant, whether apartment, house or land."