Hanoi: Imbalance of Housing Demand and Supply

By: Tran Thi Minh Hieu

At a conference in Hanoi in December 2017 organized by the Hanoi Institute for Socioeconomic Development Studies and sponsored by Hanoi People’s Committee, researchers at the institute suggested that Hanoi should keep housing supply to no more than 20 percent over demand to avoid excess supply and waste of resources. They recommended that the city authorize no more than 3.5 million square metres of residential space for new development projects each year.

This conclusion made headlines in local media, since many people would find it absurd that Hanoi is intentionally selling more houses than its residents are willing to buy.

The capital city is the second most crowded city in Vietnam behind Saigon, with a population of 7.3 million as of 2016, according to statistics provided by the General Statistics Office of Vietnam (GSO).

Priced Out

In fact, demand for housing is really high, but many still struggle to afford a new home. The Hanoi Department of Construction said in 2016 that Hanoi needed at least 7 million square metres of residential space, or 120,000 new apartments for middle income families whose budget is around VND1 billion (US$45,000) for an apartment.

houseImage source: 2.bp.blogspot.com

The latest report by the Vietnam Association of Realtors (VARS) shows that in 2017, Hanoi’s market has 54 projects on sale, supplying 34,217 apartments, 950 villas and 999 shophouses. Apartments accounted for 90 percent of new accommodations.

52 percent of the 20,776 apartments sold are from the low end market, with prices from US$600 to US$1000 per square metre, and 42 percent are from the middle market (US$1000 to US$1500 per square metre).

There are very few projects at less than US$600 per square metre. Meanwhile, none of the 330 luxury apartments priced at over US$1900 per square metre was successfully sold in 2017.

The mismatch of demand and supply in Hanoi reflects two sides of a coin: housing supply for the high-end market segment is in excess, while the most of the demand for affordable housing has not been met.

Hanoi residents prefer to stay in the centermost districts, including Hoan Kiem, Ba Dinh, Dong Da, Hai Ba Trung, Thanh Xuan, Cau Giay and Tay Ho, where facilities such as schools, hospitals, offices and shops are concentrated. However, land prices in these areas are ever increasing, so investors opt for developing luxury apartments for high returns.

houseImage source: sieuthiduan.vn

But while most affordable apartments are approximately 10 to 20 kilometres from the city center, the development of facilities and public transportation is not keeping up. This is a considerable challenge that prevent many people from choosing to buy these apartments, when they can continue to rent a place in the city centre.

Contrasting Scenes

Statistics from real estate company CBRE show that in 2017, the supply of apartments in Hanoi is a 16 percent increase from 2016 and is the highest in the last five years. In contrast, Ho Chi Minh City in the same period saw an 18 percent decrease in apartment supply, with 31,106 apartments on sale.

However, the shrink in supply allowed consumers to buy apartments that are still in stock from previous years. As a result, a total of 32,905 apartments were sold in Ho Chi Minh City in 2017, more than in Hanoi. This is the first time in the past five years that demand overtook supply in a city booming with development projects.

According to CBRE, this is because developers in Saigon are turning their gaze towards the middle market, meeting the demands of consumers who are really looking for accommodations rather than investment opportunities.

houseImage source: idolza.com

The middle market segment, priced at US$800 to US$1500 per square metre, accounted for 64 percent of apartments on sale, compared to only 40 percent in 2016. It also had the highest number of apartments sold, taking up 60 percent of the whole market.

The Vietnam Real Estate Association (VNREA) studied housing activity last year and produced analysis that firmly shows the southern city’s dominance in the real estate market.

According to VNREA, there are 70 new real estate projects on sale in Ho Chi Minh City in 2017, providing 37,067 apartments, 1,057 villas, 3,362 shophouses and 1,518 plots of land. This makes Ho Chi Minh City the largest real estate market in Vietnam. Similarly, the number of apartments sold is 40,786, almost double that of Hanoi.

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