According to many property experts, with winning bid of upto VND 2.45 bn per square meter of land, these land plots will then offer built up apartments at prohibitive prices of upto VND 70 bn. It is now to be seen which type of customer will investors target to sell these apartments and recover their costs.
Prohibitive rates
According to Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association (HoREA), the land plot of 10,000 square meters that the Tan Hoang Minh Group bought for VND 2.45 bn per square meter is not the most expensive. Based on the planning criteria which includes a number of floors, land use coefficient, construction density, construction investment costs, estimated capital cost which also includes borrowing 70% of total investment at an interest rate of 10% per year to pay back within five years, with selling expense costs, and expected profit at about 20%, and finally HoREA will then offer a price for an apartment in four successful auctioned land lots in Thu Thiem New Urban Area as per the terms listed below.
Lots 3 to 5 have an area of 6,446 square meters, and the auction winning unit is the Dream Republic Joint Stock Company, which is expected to build a ten-storey apartment building with 76 apartments. The average selling price of each apartment in the future on this land area is forecast by HoREA to be around VND 80 bn per unit, equivalent to VND 666 mn per square meter with VAT not included.
Lots 3 to 8 have an area of 8,568 square meters, and the auction was won by Sheen Mega JSC, which is expected to build 14 floors with 113 apartments. The average selling price of apartments in this project will be about VND 61 bn per unit, equivalent to 510 mn per square meter.
Lots 3 to 9 have an area of 5,009 square meters, and the Binh Minh Trading and Investment Development Company Limited won this auction. According to the planning criteria, the project on this land is expected to have 101 apartments with 14 floors. The average selling price for the investor to make a profit is about VND 79 bn per unit, equivalent to 640 mn per square meters.
The last land lots 3 to 12 are also the largest lot of 10,060 square meters, successfully auctioned for VND 24,500 bn by a subsidiary of the Tan Hoang Minh Group, and expected to build 29 floors with 570 apartments. HoREA estimates the price of apartments in this lot in the future will be up to 70 bn per unit, with the average unit price at VND 580 mn per square meters.
Therefore, according to the planning criteria, the land lots 3 to 5 are the most expensive because the land use coefficient is low, so the selling price of the finished apartment per square meter will be the highest so the investor can recover the entire capital and also make a good profit.
The president of a real estate group told Saigon Investment that currently cities with the most expensive land in the world are in Monaco with USD 1 mn for 16 square meters, and with the same amount in Hong Kong one can buy 22 square meters, in New York 25 square meters, in London 28 square meters, in Geneva 41 square meters, in Paris 46 square meters, in Sydney 48 square meters, in Shanghai 54 square meters, in Los Angeles 58 square meters, and in Beijing 66 square meters.
Mr. Do Anh Dung, Chairman of the Tan Hoang Minh Group, one of the winning bidders, when talking of future plans said that he would build a building called D'Billionaire or the Billionaire building. The rich and super-rich foreign buyers who need and want to own an apartment in Ho Chi Minh City can buy apartments for several million dollars, and that price is said to be cheaper than in their own country.
New price level
With high land auction bids, and huge budgets, the result will be that land prices will soar even higher and many times out of reach for many. According to Mr. Le Hoang Chau, the abnormally high land price can make the affordable housing segment disappear, which means that the dream of the poor to own a cheap house is now further away.
The price of land upto VND 2.4 bn per square meter will directly affect all housing segments in the market according to the rule of common equality, which is that land prices increase and spread from one area to another, from high segment to low segment. First, the price of luxury and super-luxury real estate will establish a new price level. Next, the selling price of the high-mid-end segment will also escalate. However, the hardest hit will be the low-cost commercial housing segment, although there are plans to stabilize the low-cost housing market. When land prices rise, input costs of housing projects will also increase significantly.
Mr. Tran Khanh Quang, a real estate expert, said that when the land price is too high, it will be beneficial for investors who have projects and have paid land use fees in Thu Thiem New Urban Area and neighboring wards, including the downtown area of Ho Chi Minh City. On the contrary, it is very disadvantageous for investors who have not yet paid land use levy, or who have just temporarily paid land use levy, especially for investors who have signed contracts to raise capital from customers.
If the land use fee is determined according to the market price based on the newly established high prices, the land use fee will increase a lot and the investors will suffer losses. The established excessively high land price may also have an adverse effect on the central area of District 1, benefiting super luxury projects, creating a feeling that the selling price of super luxury apartments in District 1 are in the range of VND 500 mn per square meter.
Currently, some investors have stopped selling, or have accepted contract penalties to hoard goods, and waiting for better opportunities to increase prices. In fact, house prices in Thu Duc City have increased sharply compared to earlier. These moves have created a virtual fever, and housing prices have increased but no one is buying, making the already difficult market even more difficult.
The fact that the land price is too high is established as it affects the mortgage at the bank which can be proposed for re-valuation. For instance, a one-hectare land plot in this area that is mortgaged to a bank is valued at VND 1,000 bn and has borrowings of VND 650 bn, equivalent to 65% of the value of the collateral. If this land lot is revalued to increase eight times or VND 8,000 bn, from its original value, an additional VND 4,550 bn can be borrowed, equivalent to 65% of the new collateral value, which will then in all likelihood create a property bubble.
