Authorities and property developers are seeking to address the problem of vacant villas and houses in Hanoi in an attempt to strengthen the real estate market.
The Bureau of Housing and Real Estate Market Management under the Ministry of Construction (MoC) released a report in early May on the state of project implementation and housing use in new urban areas and residential areas in Hanoi. Most projects inspected were behind schedule, infrastructure investment lacked compatibility, and the rate of vacant villas and houses remained high.
Vacant low-rise housing
The inspected projects were approved and began construction in the 1996-2006 period, of which most were initiated in 2004. At the time of inspection, 6,860 low-rise apartments had been built in 18 new urban area projects in Hanoi, with 5,152 apartments coming into use and 1,708 remaining incomplete.
Projects with a high rate of vacant housing include the Quang Minh Residential Project I, in which most villas are unused, the Quang Minh Residential Project II, in which 106 out of 208 villas and 67 out of 106 houses are incomplete, the Dich Vong new residential area, in which 67 out of 82 villas and 26 out of 72 houses are unused, the Phap Van-Tu Hiep new residential area, in which 100 out of 213 villas are unused, and the Mo Lao - European Overseas Vietnamese Village New Urban Zone, in which 186 out of 257 villas and 191 out of 262 mansion houses are unused.
Even projects in favourable areas that meet basic technical infrastructure and social infrastructure are in a similar situation, such as the My Dinh II Urban Area, in which 19 out of 206 villas are unused, and the Trung Yen New Urban Area, in which five out of 61 villas and 26 out of 646 mansion houses are unused.
The MoC puts the high rate of unused housing in several projects down to several factors, including the large amount of low-rise housing against a low rate of residential condominiums, a lack of compatibility among technical infrastructure and social infrastructure in most projects, an absence of essential services such as schools and markets or the fact that they are not connected with the rest of the urban infrastructure, difficulties in transportation, real estate speculation, a lack of inspection over slow-going projects, and unsuitable methods of investment, in particular regarding land division and sales.
Deputy Minister of Construction Nguyen Tran Nam emphasised that the situation shows a lack of professional investment methods. He also said that there were many small investors building houses for sale without considering services such as schools and healthcare centres. “Large urban areas and works must be built in appropriate areas, yet many people with limited vision insist on purchasing unsuitable housing and are then unable to sell them,” he said.
The Bureau has proposed property investors complete their projects on schedule, proactively implement coordinated technical infrastructure and social infrastructure, and determine effective measures for requiring buyers to use their houses and take on responsibility for completing the houses before handing them over to customers. It is important that the State introduce sanctions when infrastructure is not completed. It must also enforce tax polices to effectively curb real estate speculation. “MoC has submitted proposals to the government regarding the management of Vietnam’s property market,” the Bureau’s report stated.
Identifying solutions
Mr Pham Si Liem, Deputy President of the Vietnam Construction Association, said that vacant villas in urban areas have a major effect on urban architecture. “Many villas have become the neighbourhood dumping ground or are used by drug addicts and prostitutes,” he said. This shows ineffective urban management in Hanoi. “MoC’s solutions are drawn from experience and are correct, but come too late,” he said. “In other countries, authorities have strictly controlled this issue over a long period.” He also insisted that if investors did not complete projects on schedule they should be punished.
The compulsory completion of housing would make it difficult for businesses that can’t finish their projects because of capital shortages. Mr Liem believes authorities should identify other solutions. “Investors only have to complete the exterior of the house, with the interior being the responsibility of the owner,” he said. “Local governments then inspect and sanction any homeowners that have not completed their houses or set a period of time for them to finish.” If homeowners cannot complete their house on schedule, the State can auction it or purchase it for use as public housing or office space, he added.
Mr Nguyen Van Duc, Deputy Director of Dat Lanh Property Company, agrees with Mr Liem. “Many rich people own hundreds of thousands of square metres of land or even more,” he said. “Authorities should punish real estate speculators but they should also consider their desire to set up their children in later life.”
There are other solutions to boost the real estate market, he continued, rather than creating difficulties for people in general and businesses in particular. “If investors are forced to complete their housing projects there will be additional input costs,” he said. The rule enforcing investors to complete houses before hand over is scarcely feasible, he believes.
Meanwhile, Mr Nguyen Huu Cuong, Chairman of the Hanoi Real Estate Club and Director of the Cuong Phat Group, said that compulsory completion of entire project will increase capital investment. “There are no measures supporting investors,” he said. “No investors in Vietnam can afford to complete a project from beginning to end without securing capital from abroad or cooperating with secondary investors.” If this requirement was put into practice it would certainly make life difficult for real estate businesses. “We should identify investors who the capacity to complete everything within their project on schedule at high quality and with no negative consequences for society,” he said.
Mr Pham Thanh Hung, Deputy General Director of the Century Real Estate Company, said that the rule would limit land speculation. “But the rule’s application would result in investors and customers paying more,” he said. “Even when owners have completed their houses many don’t live in them, which is wasteful.” High taxation of vacant housing may be a solution to curbing land speculation, reducing pressure on housing, and creating spacious and modern urban areas.
For his part, Mr Dang Hung Vo, former Deputy Minister of Natural Resources and Environment, believes that land taxation of between 2 and 3 per cent per year is necessary, since the current tax rate of between 0.03 and 0.15 per cent of the land’s value has not stopped real estate speculation. “People owning 100 square metres in areas with the highest land price in Hanoi only pay tax of VND1.5 million ($75) per year,” he explained. “This is nothing compared with the profits to be earned from speculation. The best solution is to impose higher tax rates on those owning large amounts of real estate.”
The Ministry of Finance is considering three options for solving the issue of vacant villas.
The first is to impose a tax, depending on how long the houses have remained vacant. Where they remain vacant three months after completion, owners will incur a tax rate of 5 per cent calculated on the value of the house purchase contract. If they are vacant after 12 months, the tax rate is 10 percent.
The second option is administrative sanctions. The owners of vacant villas will be fined between VND10 and 20 million ($500-1,000).
The third option is calculating a tax according to the land area. The rate would be 0.15 per cent per year, calculated on the value of house purchase contract. This method can be created under the Tax Law for non-agricultural land applied from January 1, 2012.
No option has been selected as at the time of writing.
Huyen Ngan (www.vneconomy.vn)
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