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Under-construction projects are struggling to deal with a shortage of investment capital, construction delays and unsold products. Customers, meanwhile, are looking to cancel contracts.
Nguyen Xuan Loc, general director of Techcom Real, said that while the mid-end apartment were finding the going tough, the position in the high-end segment was 10 times worse.
Providing evidence for his comments, Loc revealed that his real estate transaction centre had been selling high-end apartment products from projects in Districts 2 and 7 of Ho Chi Minh City for many months but the number of successful transactions has been very small.
“Because of slow sales, developers have to cut prices every few weeks. In many projects, developers have been forced to reduce [prices] three or four times, with total reductions up to 30 per cent. Sales haven’t improved,” Loc said.
In the few some years, and especially at the end of 2011, the high-end apartment segment in Ho Chi Minh City has been almost stagnant. In projects such as Blooming Park, Saigon Pearl, Sunrise City, The Everich 2 and Kenton Residents, developers have not officially slashed prices.
But customers who bought those apartments before had admitted to sharply reduce price, compared to the price which were quoted by the projects’ developers since the first launching.
For example, apartments at the Saigon Pearl project originally carried a price tag of VND35 million ($1,666) to VND40 million ($1,932) per square metre. However, some buyers are now selling up at VND26 million ($1,240) to 28 million ($1,333) per square metre. Nonetheless, it remains difficult to find buyers.
Many other under-construction projects are also on hold because developers cannot rustle up the necessary cash to continue.
The New Pearl project developed by Ky Nguyen Real Estate Company saw work kick-off at the end of 2009. Its location made it hot property at the time and Nguyen Ngoc Duong, deputy business director of the project, predicted sales of 100 per cent for the first released units with the price being $4,000 per square metre.
However, work stopped recently and Duong recently told VIR he had left the project.
To solve the difficulties of real estate market, developers in Ho Chi Minh City have broadened their incentives beyond price cuts.
Phat Dat – the developer of The EverRich 2 located in District 7 – recently decided to reduce the total contract value by 15 per cent for buyers who can pay in full. They are also offering a one year exemption from management fees and two years free car parking.
Meanwhile Novaland – the developer of the Sunrise City located in District 7 – is offering “Leasing granted with buying rights” and many other different options. This method is considered “co-investing” with customers.
According to Nguyen Van Duc, deputy director of Dat Lanh Real Estate Company, all of these measures were temporary and not efficient because the only buyers in the market now are end-users with a real demand of accommodation and high-end apartments do not meet those demands. There was also less opportunity for speculation.
Another source of pressure on the high-end apartment in Ho Chi Minh City comes from mid-end competition. Some mid-end projects have offered sharply reduce prices, including An Tien Residence Area which is offering a price of VND14.4 million ($685 per square metre).
The project is in the same street as Kenton Residences developed by Tai Nguyen Company where prices are VND30 million ($1,430) per square metre.
The general director of one property company said that high-end projects couldn’t compete in that arena. “We could be forced into bankruptcy if we reduced our price like them [the mid-end projects],” he said.