Is Affordable Housing in High Demand in HCMC?

Real Estate - Saigon/HCMC: May 25, 2017

One of the keywords in Vietnam’s real estate today is urbanisation. Today, 34.1 percent of the country’s population live in cities, and this number is rapidly growing. The biggest question remains: where will everyone live? With an increasing FDI presence, a rising middle class and an influx of expatriates from wealthier countries, there’s no simple answer to this question.

Nguyen Van Duc, the founder and owner of Dat Lanh Real Estate Company Ltd., a real estate developing company that focuses exclusively on affordable housing in Ho Chi Minh City, knows this only too well.

houseImage source: by Thinh

With the help of his son, Nguyen Hung Tam, who acted as interpreter, Duc explained why he began devoting his life to affordable housing in 1976. He pointed out an obvious advantage to affordable housing development: “The land available is on the outskirts of the city, so it’s cheaper.” So far he’s built dozens of housing projects for low-income workers, mostly in District 12, and this demand will not let up anytime soon.

Adding Up the Numbers

Thousands of Vietnamese have been pouring into the city limits, attracted by the prospect of employment and educational opportunities. While this increase is clearly good news for manufacturing factories and schools, it has caused strain on the city’s housing and infrastructure developments.

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One problem? Foreign Direct Investment (FDI) has been funneling into HCMC’s high-end real estate projects, but has so far turned a blind eye towards affordable housing. Duc considers the question for a moment before answering: “From my knowledge, there’s only been one foreign company that is investing in affordable housing. And I don’t know the name. It’s not a big presence.”

For local investors it’s also notoriously difficult to gather the money to complete these projects through bank loans. Dat Lanh Real Estate Company Ltd. has found another way to complete Duc’s projects: crowdsourcing from potential tenants.

Many low-income workers and families will learn of a real estate project and will invest money to ensure a place to live when the project is finished. I ask how many projects have required help from tenants, and Duc’s response is immediate: “Most of them.”

Rising Demand and a Shifting Future

Middle- to high-income apartments are only viable for 20% of Vietnam’s population. Recognising the need for change, the real estate market has already seen a shift in development. Last December, for example, Vingroup’s residential sector, Vinhomes, announced plans to develop condos with a VND 700 million price tag in the outer districts of Hanoi, HCMC, Nha Trang and other larger Vietnamese cities. While this goes in the right direction, more substantial plans are required to address the needs of the millions of students and workers who want affordable living space.

For Duc, the question of an adequate supply of housing depends on several factors. He’s adamant, for example, about the need to revise the necessary amount of square metres per apartment. In HCMC, every apartment needs a minimum of 45 m2; Duc would like this to be changed to 30 or even 20 m2, like the building limits in Binh Duong.

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Duc expressed his desire to find a like-minded foreign partner who could help fund affordable housing projects in Districts 12 and 9, though many foreign companies are likely put off by the low return on investment (around 10 to 20 percent). “It’s true,” he said, “the profit is not very high. But the benefit is, we always run out of the product.”

Banner image source: by Thinh