Why Are Apartment Prices in Hanoi Still Rising Despite the “Plummeting” Real Estate Market?

DNHN - The real estate market in Hanoi has been facing many difficulties recently, with trading activities “plummeting”. However, apartment prices continue to rise. So, what are the reasons behind the continuous price increase in the apartment segment?

High Demand for Housing

One of the main reasons for the increase in apartment prices in Hanoi is the shortage of supply. In recent years, the approval of new apartment projects has been limited, and regulations on planning and construction have also changed. This has reduced competition among developers and led to a shortage of apartments in the market.

Accordingly, although the real estate market has been “plummeting” in the recent period, the demand for apartments in Hanoi remains high. The main reason is the increasing population, the urbanisation trend, and the demand for housing from both domestic and foreign residents. In addition, many investors see the long-term development potential of the Hanoi real estate market, so they still want to buy apartments as a form of investment.

Besides, apartment prices in Hanoi are also affected by external factors. Recently, the increase in construction material prices, such as steel, cement, and wood, has significantly impacted the cost of apartment projects. In addition, the increase in land prices and construction costs has also contributed to the increase in apartment prices.

Another factor that may explain the increase in apartment prices is the impact of psychological factors. During the period when the real estate market was “plummeting”, some buyers may have considered apartments a safer option than investing in other types of assets. Therefore, the increase in demand for apartments in the context of limited supply has created upward price pressure.

Mr Nguyen Quoc Duc (born in 1990) said that he and his wife planned to buy an apartment to rent out. After a period of research, Mr Duc and his wife were shocked by the sharp increase in Hanoi apartment prices. An apartment with an area of nearly 60m2 in the HD Mon building on Nguyen Co Thach Street was offered for sale just a few months ago for nearly VND 3 billion. Currently, some homeowners are offering it for VND 3.2-3.3 billion.

According to a survey by Doanhnghiephoinhap.vn, in the Vinhomes Smart City urban area, apartment prices have also been continuously setting new records. For example, in the S1 buildings, the price of a 55m2 apartment before 2022 was only offered for VND 1.7-1.8 billion. Currently, buyers need to have an estimated budget of VND 2.2-2.4 billion to be able to choose and find a satisfactory apartment.

For example, in the S3 apartment building, the price of an apartment over 40m2 was once offered for VND 1.5 billion. Currently, some homeowners are offering it for VND 2.2 billion. This price includes furniture.

Rising Material Costs

According to experts, homebuyers are struggling with the skyrocketing apartment prices in Hanoi. Not only new projects but also used apartments have increased sharply in price, with some areas doubling in price after five years.

Explaining this, Dr Nguyen Van Dinh - Chairman of the Vietnam Real Estate Brokers Association, said: “The demand for housing in big cities is still very high, while real estate projects with a long investment preparation process mean that supply cannot immediately meet demand. Many projects are stalled due to legal problems, so apartment prices are unlikely to decrease and may even increase.”

According to Mr Dinh, land prices are setting new records, construction material costs are increasing, and the costs of land acquisition, clearance, and compensation are rising. All of these contribute to the cost of the apartment that is eventually built.

“Another important reason is that the number of projects that have been approved for 1/500 scale and have completed the obligation to pay land use fees is extremely small, while the market demand is continuously increasing. This major catalyst is pushing up apartment prices in Hanoi,” said Dr Nguyen Van Dinh.

Although the real estate market in Hanoi is in a stagnant phase, apartment prices continue to rise. The main reasons include the shortage of supply, increased demand from buyers, external factors, and the impact of psychological factors. The shortage of supply is due to the limited approval of new apartment projects and changes in planning and construction regulations. In addition, the demand for apartments is increasing due to population growth, the urbanisation trend, and investment demand from domestic and foreign sources.

Furthermore, external factors, such as rising construction material and land prices, also contribute to the increase in apartment prices. Finally, the psychological factor of buyers also plays a role as they see apartments as a safe option in a frozen real estate market. The increase in apartment prices in the context of limited supply has created upward price pressure. Although apartment prices are still rising, attention and supervision from relevant authorities are needed to ensure transparency and fairness in the real estate market.

Nhan Ha