​High incomes not enough for urban housing in Vietnam

​High incomes not enough for urban housing in Vietnam

Housing prices in Hanoi and Ho Chi Minh City are out of reach for many individuals, including those earning VND13 million ($528) to VND18 million ($732) per month, a relatively high income by local standards.

With current incomes, even the highest-earning working-class families in the major cities of Vietnam cannot afford housing. Photo: Bao Ngoc / Tuoi Tre

Workers in urban areas such as Hanoi, Da Nang, Ho Chi Minh City, and Binh Duong Province are finding it difficult to purchase a home, even with savings, as per an assessment by the Vietnam Association of Real Estate Brokers (VARS) in their market research report for the first week of December.

Annual savings can only buy 1-2m² of housing

The 2023 Residents' Living Standards Survey, released by the General Statistics Office in April, categorized average incomes in major urban areas like Hanoi, Da Nang, Ho Chi Minh City, and Binh Duong into five income groups.

In 2023, the highest income group had average monthly earnings of approximately VND14.4 million ($585) in Hanoi, VND13.3 million ($541) in Ho Chi Minh City, VND13.9 million ($565) in Dong Nai, and VND18.3 million ($744) in Binh Duong.

VARS said that this group should theoretically be able to afford homes in major cities without government assistance.

However, soaring housing prices -- ranging from VND40 million ($1,575) to VND70 million ($2,756) per square meter, depending on location and housing segment -- make homeownership a challenge, even for this high-income bracket.

VARS assumed that each household in the highest income group consists of two working-age individuals, with an average household income estimated at around VND30 million ($1,220) per month, equivalent to approximately VND360 million ($14,634) a year.

Using the common financial rule that housing costs should not exceed one-third of income, the maximum affordable housing cost is about VND80 million ($3,252) per household per year.

This amount is currently only sufficient to buy 1-2m² of an apartment in Hanoi and Ho Chi Minh City.

Meanwhile, commercial flats in these cities are listed for sale at VND40-70 million per m², meaning a 60m² apartment costs approximately VND2.5-3.5 billion ($101,626-142,276).

If a high-income household in these urban areas decides to purchase a 60m² apartment priced at about VND3.5 billion and take out a bank loan equal to 70 percent of the house value at an interest rate of eight percent per year over 20 years, the monthly installment will be around VND25-27 million ($1,016-1,098), equivalent to over VND300 million ($12,195) per year.

Therefore, with a maximum housing payment of VND80 million ($3,252) a year, almost all households in the high-income group in urban areas cannot afford to buy a house without support from relatives or the government.

Most people cannot afford to buy a house

According to VARS, most people, particularly workers who have faced economic challenges in recent years, are unable to afford housing.

This is largely because housing prices in major cities have far outpaced the financial means of residents, whose numbers continue to grow rapidly.

The rise in housing prices has significantly outstripped the growth in incomes, making homeownership increasingly unattainable.

Another reason is the shortage of affordable housing. Currently, housing supply is mainly concentrated in the mid-range and luxury segments, with very few housing projects priced below VND30 million per m², leaving most residents without suitable options.

Some investors have exploited the scarcity of supply in the market to unreasonably elevate selling rates, causing property prices to rise even in areas without significant infrastructure advantages.

This situation has created difficulties for those with genuine housing demand.

One of the main factors driving skyrocketing real estate prices is speculative behavior.

With other investment channels still experiencing fluctuations, asset hoarding psychology, and the expectation that real estate prices will continue to spike, many people buy houses and land not for actual use.

They purchase real estate and then abandon it, leaving it unused while waiting for prices to increase, exacerbating the supply-demand imbalance.

Another rarely mentioned but significant factor affecting house prices is financial cost.

Although interest rates have fallen, home loan borrowers in Vietnam still face floating interest of around 10 percent or higher after the preferential period.

This also places financial pressure on homebuyers.

Reducing housing prices

To reduce housing prices, VARS believed that in addition to continuing to research and implement incentive policies regarding land, taxes, and mortgage loans for social housing and affordable commercial housing projects, the government needs to improve  connectivity infrastructure and expand urban development according to the transit-oriented development model.

This is essential to solve the housing problem for urban residents in Vietnam.

If residential, commercial, and service areas are built around public transportation networks such as trains, metros, and bus rapid transit routes, people will be willing to move to suburban areas where businesses can develop projects with lower prices.

When the supply is sufficient and appropriate, house prices will gradually adjust to their true value.

Tuoi Tre News