HOUSING MARKET TRENDS IN HANOI BEFORE AND AFTER THE AMENDMENT OF THE LAW ON HOUSING 2025

HOUSING MARKET TRENDS IN HANOI BEFORE AND AFTER THE AMENDMENT OF THE LAW ON HOUSING 2025

HOUSING MARKET TRENDS IN HANOI BEFORE AND AFTER THE AMENDMENT OF THE LAW ON HOUSING

MSc. Nguyen Pham Anh

National Economics University

Abstract: With a population of nearly 8.5 million people, Hanoi currently accounts for approximately 8.5% of the country’s population, ranking second in population size in Vietnam, after Ho Chi Minh City (8.9 million people). This growth is the result of urbanization and migration into Hanoi. According to the Hanoi Population and Family Planning Department, the capital’s population increases by about 200,000 people annually.

With this rapid population growth, the city faces numerous challenges related to infrastructure, healthcare, education, transportation, the environment, and especially the high demand for housing. This increase in demand has significantly driven up real estate prices, making it difficult for many residents to purchase homes.

The Law on Housing amendment was passed by the National Assembly on November 27, 2023, and came into effect on August 1, 2024. This amendment introduces several important new points and ensures consistency with the amended Law on Real Estate Business and Law on Land.

This paper focuses on analyzing the housing market trends in Hanoi before and after the implementation of the amended Housing Law.

Keywords: housing supply, housing prices, housing market, trends.

1. Introduction

The housing market is a specific segment within the broader real estate market when classified by the type of real estate goods available. In other words, the housing market is characterized by the presence of apartments or row houses (Grimes and Orville, 1976).

However, there is little consensus on how to define sub-markets in practice. The housing market is individual and sensitive because purchasing a home is a significant financial risk for households.

The housing market plays a crucial role in both society and the economy (Goodman and Thibodeau, 2003). It provides individuals and families with stable urban living conditions and helps reduce disease rates caused by poor living conditions.

 The housing market also serves as an investment and consumption opportunity for households, contributing significantly to the economy. The current demand for housing is very high, especially in major cities like Hanoi.

According to the Hanoi Housing Development Program for the period 2021-2030, the goals set for 2025 are as follows: The average floor area per person citywide is targeted to reach 29.5 square meters per person, with the urban area achieving 31 square meters per person and the rural area achieving 28 square meters per person.

The plan includes the development of approximately 1.25 million square meters of social housing, 0.565 million square meters of resettlement housing, and around 19.69 million square meters of commercial housing, with each apartment having a minimum area of 40 square meters.

By 2030, the average floor area per person citywide is targeted to reach 32 square meters, with the urban area achieving 33 square meters per person and the rural area maintaining 28 square meters per person.

The plan includes the development of approximately 5.55 million square meters of social housing, around 1.3 million square meters of resettlement housing, and approximately 15.19 million square meters of commercial housing. Additionally, the city plans to renovate and rebuild 10 old apartment complexes.

Priority is given to housing projects in expansion areas, and the development of satellite urban areas is being promoted. The goal is for 100% of new housing and urban area projects with a land use scale of 10 hectares or more to be planned according to green housing trends, smart urban areas, and the application of digital technology.

These urban areas and housing projects must be equipped with complete infrastructure (electricity, water supply, and drainage systems), public education facilities, waste collection points, electric vehicle charging stations, and environmentally friendly materials.

2. New Points in the Revised Law on Housing

On November 27, 2023, the National Assembly passed the Law on Housing 2023, which comprises 13 chapters and 198 articles and will take effect from January 1, 2025. According to the revised law, there are eight new points as follows:

2.1. Mini Apartments Will Be Issued Certificates of Land Use Rights

 According to Article 57 of the Law on Housing 2023, individuals with residential land use rights as stipulated in Clause 3, Article 54 of the Law on Housing 2023, who construct houses under the following circumstances, must meet the conditions to act as the investor for housing construction investment projects. The investment and construction must comply with the provisions of construction law and other relevant laws for housing construction investment projects:

– Housing with two or more floors where each floor is designed and built with apartments for sale, for lease purchase, or for a combination of sale, lease purchase, and lease of apartments;

– Housing with two or more floors and a scale of 20 or more apartments for lease.

The above-mentioned apartments (commonly referred to as mini apartments) will be issued with a Certificate of House Ownership (or pink book) according to land law, and can be sold, leased purchase, or leased according to the provisions of the Law on Housing 2023 and real estate business law.

2.2. No More Regulations on the Duration of Apartment Ownership

Specifically, according to Article 58 of the Law on Housing 2023, the duration of use of an apartment building is regulated as follows:

– The duration of use of an apartment building is determined based on the design documents and the actual usage time of the apartment building as concluded by the competent authority. The duration of use of the apartment building as per the design documents must be clearly stated in the appraisal documents of the competent authority in accordance with construction law.

– The duration of use of the apartment building is calculated from the time of acceptance of the apartment building for use according to construction law.

– When the apartment building has reached the end of its design life as stipulated in Clause 1, Article 58 of the Law on Housing 2023, or has not yet reached the end of its design life but is damaged, at risk of collapse, and does not ensure the safety of the owner and users of the apartment building, the provincial People’s Committee must direct the implementation of inspection and quality assessment of the apartment building as regulated in Article 61 of the Law on Housing 2023.

2.3. Regulations on Forced Relocation from Apartment Buildings Subject to Demolition

According to Article 74 of the Law on Housing 2023, in cases where the relocation period as per the provincial People’s Committee’s relocation decision has expired and the apartment building owners or users have not relocated, the provincial People’s Committee will issue a decision on forced relocation.

The district-level People’s Committee where the apartment building is located is responsible for organizing the forced relocation in accordance with the provincial People’s Committee’s decision.

2.4. Expanded Eligibility for Social Housing Purchase

According to Article 76 of the Law on Housing 2023, an additional group has been added to the eligible beneficiaries of social housing support policies compared to current regulations: enterprises, cooperatives, and cooperative unions within industrial zones.

2.5. Revised Principles for Selling, Leasing, and Lease-Purchasing Social Housing

Under Article 89 of the Law on Housing 2023, social housing tenants and buyers are not allowed to resell the house within a minimum period of 5 years from the time they have fully paid for the lease purchase or purchase of the house.

– If, within the 5-year period from the date the buyers or lease purchasers have fully paid for the house, they wish to sell the house, they can only sell it to the social housing management unit or to individuals eligible to purchase social housing if the unit does not buy it. The maximum sale price is equal to the price of similar houses at the same location and time of sale.

– During the 5-year period, buyers or lease purchasers can only resell to the project investor or to eligible individuals to purchase social housing at a maximum sale price equal to the social housing price in their sales contract with the project investor.

2.6. Development of Social Housing Land Funds within Commercial Housing Projects

According to Article 83 of the Law on Housing 2023, the provincial People’s Committees must allocate sufficient land funds for the development of social housing according to the approved provincial housing development programs and plans.

– In special, Class I, Class II, and Class III urban areas, based on government regulations, the provincial People’s Committee will decide that the investor of a commercial housing construction project must allocate a portion of the residential land area within the project, where technical infrastructure has been invested, for the construction of social housing.

– Allocating social housing land funds with invested technical infrastructure in locations outside the commercial housing construction project area in that urban area or paying an amount equivalent to the value of the land fund with invested technical infrastructure for the construction of social housing.

– The provincial People’s Committee is responsible for investing in technical infrastructure systems outside the social housing construction investment project.

2.7. Incentives for Social Housing Developers to Foster Stronger Development of This Housing Type

Article 85 of the Law on Housing 2023 stipulates that developers are exempt from land use fees and land rent for the entire project area. Additionally, developers do not have to carry out procedures for determining land prices, calculating land use fees, and land rent, nor do they have to carry out procedures for requesting exemption from land use fees and land rent.

2.8. Construction of Accommodation for Industrial Zone Workers

According to Clause 8, Article 2 of the Law on Housing 2023: Worker accommodation within industrial zones is a construction project built on commercial and service land within the industrial zone as stipulated by industrial zone management laws. It is intended to provide housing for individuals who are workers, to rent during their working period in the industrial zone according to the provisions of the Law on Housing 2023.

3. The Housing Market in Hanoi Before the Law on Housing Takes Effect

In 2022, approximately 15,100 apartments were offered for sale in Hanoi, resulting in a total new supply decrease of 12.3% compared to the previous year. This marked the third consecutive year of declining new supply due to various factors, including COVID-19, tightened credit, and licensing issues. By segment, this is the first time since 2011 that the new supply from the premium segment surpassed other segments to lead the new supply.

In 2022, the premium segment accounted for 55% of the total new supply, followed by the mid-end segment (44%). In terms of location, the Western area had the highest new supply after losing this position to the Eastern area for two years. The majority of the new supply in the Western area came from projects in the Vinhomes Smart City urban area. The Western area accounted for 52% of the new supply during the year, followed by the Eastern area (35%) and the Southern area (9%).

The number of units sold in 2022 remained relatively positive, reaching 16,600 units, surpassing the new supply. Notably, 65% of the units sold in the year were recorded in the first half of 2022. The sales situation was negatively impacted by recent credit tightening issues and rising interest rates, leading to slower sales in the second half of the year.

The average primary price of condominiums in Hanoi reached USD 1,934 per square meter (excluding VAT and maintenance fees) by the end of 2022, up 21.2% compared to the same period last year. This increase was mainly due to the higher proportion of premium products in the total supply available for sale.

Over the past three years, as new supply has been maintained at a low level, various locations in the city have witnessed repositioning and price increases, especially under recent interest rate pressures and inflation.

In the secondary market, the average selling price as of Q4/2022 reached USD 1,303 per square meter, up 7.5% from the same period last year, but down 2.8% from the previous quarter. This was the first quarter to record a quarter-on-quarter decrease after four consecutive quarters of price increases. The quarter-on-quarter decrease mainly came from long-delivered projects.

The new supply level in 2023 is expected to be between 14,000 – 16,000 units. The number of units sold is expected to remain at a similar level to 2022 while new supply has not yet recovered. The primary price is forecasted to increase by 4-7% annually over the next three years due to the repositioning of urban projects and the anticipated launch of premium and luxury projects in prime locations.

Regarding the land-linked housing segment, the market in the last quarter of 2022 recorded the first sale phase of the Vinhomes Ocean Park (VOCP) 3 – The Crown Project.

In Q4 2022, a total of 5,587 units from three projects were newly offered for sale. The cumulative total of new units offered for sale in 2022 reached 16,249 units, setting a record for the number of new units offered in a year and even surpassing the total new supply of condominiums in Hanoi for the year. Most of the new supply of land-linked housing in 2022 came from the VOCP2 and VOCP3 mega-urban areas of Vinhomes.

Sales rates and selling prices dropped sharply in Q4 due to the tightening of loans and bond credit. Regarding the sales rate, it is estimated that 1,136 units were sold this quarter, only one-fifth of the number recorded in Q3.

The average sales rate for the entire year of 2022 reached approximately 60%. Meanwhile, after a period of high growth from Q4 2021 to Q3 2022, the secondary selling prices of land-linked housing products began to decrease from Q4 2022.

The average secondary market price in Q4 2022 (including construction costs and excluding VAT) in Hanoi decreased by 8% compared to the peak in Q3 2022, reaching about USD 6,800/m².

By district, secondary market listing prices decreased from 2% to 16% compared to the previous quarter, with districts that have seen a boom in land-linked housing projects such as Đông Anh, Hà Đông, and Hoàng Mai experiencing the most significant declines.

According to Savills Vietnam’s report, Q4 2023 is the time when Hanoi’s housing market recorded the lowest new supply in 10 years across both low-rise and condominium segments. Specifically, for the condominium segment in Q4 2023, new supply increased by 52% quarter-on-quarter but decreased by 1% year-on-year, with 2,876 units. Primary supply reached 11,911 units, down 40% quarter-on-quarter and 41% year-on-year. However, new supply recorded in the quarter only reached 10,403 units.

For the low-rise segment, the total new supply in 2023 reached 272 units, down 82% year-on-year. Primary supply reached 710 units from 16 projects, down 2% quarter-on-quarter and 23% year-on-year. Townhouses were the main product, holding a 44% market share.

Notably, the price range for both segments remains high. Apartments priced between VND 51-70 million per square meter accounted for 63% of the new supply, a 24% increase year-on-year. Apartments in this price range represented 49% of the units sold, a 21% increase year-on-year.

Apartments priced over VND 4 billion made up 42% of the units sold in 2023, up from 3% in 2019. Apartments priced between VND 2 billion and VND 4 billion held a 55% market share, while only 3% of the apartments had a selling price below VND 2 billion.

Additionally, even though most developers did not change their prices, the high-priced low-rise inventory led to an increase in primary prices. For example, primary villa prices increased by 55% quarter-on-quarter to VND 160 million per square meter of land, mainly due to the low-priced inventory in Mê Linh being sold out in Q3 2023.

Adjacent houses’ prices increased by 3% quarter-on-quarter to VND 194 million per square meter of land. Shophouse prices also increased by 3% quarter-on-quarter to VND 328 million per square meter of land.

The housing segment continued its price growth trajectory due to rising land and construction costs, infrastructure development, and improved quality. The market supply constraints continued, leading to an overall increase in the average primary selling prices.

In Hanoi, most real estate types recorded positive search growth in the first two quarters of the year. Specifically, searches for land for sale (including residential and commercial land) increased by 118% in the first six months compared to the same period in 2023.

Hanoi condominiums also saw a significant increase in search volumes in the first half of the year, with a 46% increase compared to the same period. Meanwhile, searches for private houses, townhouses, and villas for sale increased by 33%, 27%, and 9% respectively.

Regarding selling prices, Hanoi’s market also recorded outstanding price acceleration compared to Ho Chi Minh City. In Ho Chi Minh City, in the first six months of 2024, aside from the condominium segment, which saw a 6% increase in selling prices compared to the same period, other segments did not experience significant fluctuations.

In contrast, in Hanoi, condominium prices surged by 31%. In recent months, the primary market inventory in Hanoi has been sold out after each sales period despite strong price increases, with clear examples being Lumi Hanoi and some subdivisions in Vinhomes Smart City such as The Capony, Lumi Evergreen, and Solar Park.

Along with condominiums, private house prices also increased by 32% compared to the first half of 2023. This increase is attributed to the high condominium prices and scarce inventory, leading many people to search for private houses in the same price range of VND 2-4 billion, causing prices in this segment to rise sharply. Similarly, land prices, villa prices, and townhouse prices in Hanoi also increased by 19%, 18%, and 10%, respectively.

Condominiums were the hottest keyword in the real estate market in the first half of 2024, especially in Hanoi. The scarcity of inventory and soaring selling prices brought Hanoi condominium prices close to the price levels of Ho Chi Minh City, despite a significant gap less than two years ago.

 Specifically, if January 2023 is taken as a comparison milestone, at that time, the average selling price of condominiums in Ho Chi Minh City was VND 47 million per square meter, while in Hanoi, the average price was about VND 38 million per square meter.

By the end of May 2024, the average selling price of condominiums (based on listings) in both Hanoi and Ho Chi Minh City approached VND 50 million per square meter.

Notably, the price increase in the condominium segment in Hanoi was not a localized phenomenon but occurred across all segments, areas, and projects. Below is a summary of price increases in some prominent projects:

Source: Batdongsan.com.vn

4. Legal Solutions Have Been Issued But Their Impact Is Still Limited

4.1. Housing supply and demand gap

The number of houses for sale in the Hanoi market, although increasing quarterly, is on a downward trend annually. According to the housing development plan until 2025, Hanoi will need to supplement supply to meet the needs of investors and buyers.

By 2025, Hanoi’s population is projected to reach 9 million people, with urban residents accounting for about 61% of the total population, up from 49% in 2019. These figures translate to approximately 72,000 new urban households annually, while the average number of new apartments each year is 27,000.

However, it should be noted that currently, there is an imbalance in the lower-priced apartment segment between market resources. New supply and inventory of apartments are at low levels. Specifically, the supply of affordable apartments is lacking as existing projects have sold out and there is no new supply for apartments priced below VND 20 million per square meter.

Additionally, there is a discrepancy between the projected demand and the actual primary supply. According to the Hanoi Housing Development Plan for 2021-2025, the total demand for 2022-2025 is 185,200 houses, including 166,600 apartments. However, data from Savills reports show that 78,900 apartments will be launched for sale from 2022 to 2025. Therefore, adjustments in planning are needed to timely regulate future supply and ensure stable market growth.

The low supply, coupled with high housing demand from new annual migrants and the main resident group in the family formation age, creates pressure for stable housing. Additionally, the extended project implementation period due to legal difficulties increases project development costs.

The trend of buying houses for investment is quite popular due to a lack of alternative investment channels and real estate products holding good price increases over the years, despite the high price level compared to usage value or rental income.

The imbalance between supply and demand negatively affects real home purchase demand even when loan interest rates cool down, and mortgage conditions are easier due to a lack of products that meet demand and high periodic payment pressure compared to income streams in case of home purchase loans.

4.2. The Risk of Localized Oversupply in the Real Estate Market in the Suburban Areas of Hanoi

Contrary to the developments in large urban areas, project development activities in the suburban areas of Hanoi have been relatively active in recent years due to:

– Fewer legal impediments compared to larger urban areas. Local governments often facilitate investors to develop the urban appearance and infrastructure in their localities and to boost budget revenues.

– The availability of abundant land allows for the planning of large-scale projects.

– Lower land input costs make it easier for investors to create effects and reestablish price levels in the area. Additionally, they take advantage of new planning waves, infrastructure development trends, and local industrial projects.

There is a risk of localized oversupply for low-rise products and land plots in some localities, especially in class II urban areas and rural areas. Investment/speculative demand accounts for a large proportion of sales, including cash flow from investors in Hanoi. The level of urbanization and population growth/economic activities in many areas do not match the new supply and price levels in the projects. Some localities are under pressure from a declining working-age population due to mechanical migration.

4.3. Legal Obstacles Causing Delays in New Housing Project Development

Legal issues are the main reason for the delays of many projects in recent years. Real estate procedures are governed by multiple laws, which overlap and conflict, especially in regulations concerning bidding, project auctioning, land use fee approvals, investor recognition, and investment policy approvals.

In the past, many projects were approved and implemented without fully meeting legal documentation requirements, based on the support and flexibility of local authorities, posing potential legal risks during inspections.

Since 2019, legal approvals for projects have been tightened, with increased inspections and checks at the project, enterprise, and management agency levels. This has caused many projects to become stalled, including previously approved projects currently under implementation.

Numerous violations have been addressed, creating a sense of reluctance and fear of responsibility among management agencies in project approval, particularly when the development processes in their areas did not strictly adhere to legal regulations. Consequently, many projects have not been granted implementation permits, especially in large urban areas, leading to supply shortages.

Enterprises are unable to secure bank loans due to insufficient legal conditions, and projects that do not meet sales conditions force investors to rely on capital contribution contracts and investment cooperation contracts, which pose significant risks to home buyers. Many projects under implementation have been suspended or delayed due to legal issues, resulting in financial plan disruptions and prolonged stagnation.

The amendments and supplements to Decree 35/2023/ND-CP, which include the removal of the requirement to allocate 20% of residential land area in commercial housing projects for social housing, delegation of authority, and simplification of procedures for feasibility studies, basic design, and project acceptance, are merely directional. Implementation requires additional specific regulations and guidelines, with a delay of about 6 months to 1 year for legal provisions to take effect in practice.

5. Recommendations

To promote the housing market in Hanoi in line with the revised Law on Housing and to approach an effective market, the author offers the following recommendations:

– First, it is necessary to simplify and shorten the procedures and time for selecting investors for housing construction projects in general, and social housing construction projects in particular, in accordance with the provisions of the Law on Housing 2023.

– Second, the Hanoi People’s Committee needs to specify and publicly announce the list of items and technical infrastructure works in the social housing construction investment projects supported by the state budget. This will serve as a basis for investment implementation and support, attracting investors to participate in social housing development.

– Third, to accelerate the progress of housing construction investment projects and urban areas, Hanoi needs to allocate sufficient capital to implement resettlement housing construction projects. Procedures for investing in centralized social housing areas, rental housing for workers, and laborers in industrial zones should be implemented.

Additionally, project inspections should be organized, focusing on projects that have been delayed since 2021 and 2022, proposing solutions to remove difficulties, expedite land clearance, and accelerate project implementation.

– Fourth, for delayed projects with poor performance and intentional delays, it is necessary to resolutely withdraw them to re-tender and select effective investors. Violations should be made public, included in evaluation criteria, and those responsible should not be allowed to participate in similar projects in Hanoi.

– Fifth, regarding housing demand, it is necessary to balance the demand and structure of housing types to appropriately distribute them across residential areas, avoiding the concentration of a single housing type in one area.

References

1. Hanoi People’s Committee. (2022). Decision No. 5063/QD-UBND dated December 19, 2022, on approving the social housing development plan of Hanoi City for the period 2021 – 2025.
2. Hanoi under Population Pressure (2019). Retrieved from https://kinhtedothi.vn/ha-noi-truoc-apluc-gia-tang-dan-so.html.
3. Summary of Implementation of Social Housing Development Policy and Drafting the National Assembly’s Pilot Resolution on Policies to Promote Social Housing and Industrial Zone Worker Housing (2023). Retrieved from https://htpldn.moj.gov.vn/Pages/chitiet-tin.aspx?ItemID=1920&l=Nghiencuutraodoi.
4. Quyet, N. (2019). Factors Influencing the Decision to Buy Apartments in Ho Chi Minh City: An Analysis Using Hierarchical Logit Regression Model. Journal of Banking Science & Training, 207-208.
5. Long, N. T., & Thang, N. T. (2020). The Factors Affecting Customers’ Decision to Buy Apartments at Dat Xan Group Joint Stock Company in Ho Chi Minh City. Journal of Science and Technology, 46 (04-2020).
6. Deborah, L., Laurence, M., & Christina, K. C. Lee. (2008). Influences and Emotions: Exploring Family Decision-making Processes When Buying a House. Journal of Housing Studies, 23(2). doi: https://doi.org/10.1080/02673030801893164.
7. Peiyao, Z., & Chompu, N. (2022). Factors Influencing the Purchase Decision of Bangkok Building Property in the Context of New Normal Life Situation. International Research E-Journal on Business and Economics, 7(1).

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