Causes of Housing Price Increase Despite a Quiet Real Estate Market

In recent times, Vietnam's real estate market, especially in major cities like Ho Chi Minh City and Hanoi, has seen a significant increase in housing prices, despite overall transaction activity being relatively stagnant, creating a quiet atmosphere. This raises a complex question about the underlying reasons for this price escalation. So, what exactly are the roots of this situation?

One of the primary causes leading to the increase in housing prices is the severe shortage of supply. New projects have continuously faced delays or even failed to receive approval due to legal and administrative challenges, from planning approval to construction permits, leading to a growing scarcity of real estate, especially housing. Meanwhile, the demand for homeownership continues to rise, particularly in areas with rapid urbanization. This creates a pronounced imbalance between supply and demand, contributing to the rise in housing prices. Especially in central areas, the shortage of available land further exacerbates the scarcity of supply. In addition, social housing and affordable housing segments, which are solutions intended for lower and middle-income groups, also face numerous challenges in implementation, leading to limited options for those with real needs.

Furthermore, input costs in the construction process and land prices also significantly contribute to the rise in housing prices. The cost of construction materials such as steel, cement, and other building materials is on the rise due to global economic fluctuations, including inflation and supply chain disruptions. Global trade tensions and the COVID-19 pandemic have caused breaks in supply chains, driving up transportation costs. These factors, coupled with rising land prices in central locations and areas with infrastructure development potential, have significantly increased construction costs. The development of large infrastructures such as metro lines, highways, and new bridges has enhanced land values in adjacent areas, further pushing up housing prices. These costs are ultimately passed on to the selling price, burdening homebuyers with increased costs.

Speculation is another critical factor that must be considered. In a quiet market, investors see this as an opportunity to accumulate assets, waiting for housing prices to rise to sell at a profit. This speculative mentality has created upward pressure on housing prices, even though actual demand for buying homes has not increased correspondingly. A substantial number of houses are held by speculators without being put into use, creating an artificial scarcity that drives property values higher than their real value. Additionally, the involvement of foreign investors has also increased pressure on the market, as they see the long-term growth potential of Vietnam's economy and seek to invest in real estate as a means of value preservation.

Financial policy also plays an extremely significant role in this context. Credit tightening in the real estate sector has made it difficult for many projects to raise funds. This has led to difficulties in launching new projects, exacerbating the shortage of supply. Government credit control measures aimed at curbing inflation have also reduced the accessibility of loans for potential homebuyers, especially first-time buyers, making it challenging for them to finance their home purchases. Moreover, rising interest rates have prompted many investors to safeguard their capital by shifting it into real estate, particularly stable, low-risk housing types, thus adding further pressure to housing prices.

Investor and public psychology cannot be overlooked. In the context where other investment channels such as securities or bank savings have become unstable, real estate is seen as a safe and effective investment channel to preserve asset value against inflation. This mindset has increased demand for real estate investment, regardless of the already very high prices, thereby exerting additional upward pressure. Many citizens also tend to view real estate as a future asset guarantee, and the stability of real estate compared to other financial assets has further strengthened the belief in investing in this sector.

Overall, the rise in housing prices amid a stagnant real estate market is the result of numerous intertwined and complex factors. Shortages in supply, rising input costs, speculative investor psychology, and the impact of financial policies have all contributed to this phenomenon. Additionally, factors such as value-preserving psychology, uneven development of housing segments, and supply chain disruptions have made the issue even more challenging. Addressing these challenges requires comprehensive coordination between the government, businesses, and the public. The government needs reforms in legal policies to expedite project approvals and enhance support for social and affordable housing segments. Businesses need to optimize construction costs and improve project implementation processes. Citizens also need to shift their perspective from speculation to genuine homeownership, thereby helping stabilize the market and enabling everyone to access housing at reasonable prices. This could include encouraging the development of projects in non-central areas to alleviate pressure on major cities and create a more balanced distribution of housing supply.