Unpredictable consequences of the real estate market from the perspective of a “hot” increase in the price of construction materials
In fact, from the beginning of the year until now, real estate prices in many provinces and cities, especially Ho Chi Minh City, continue to rise.
According to a survey by batdongsan.com.vn, from the beginning of 2022 until now, real estate prices have increased continuously. The lowest primary price of land plots in suburban Ho Chi Minh City is 48 million VND/m2, the highest is about 100 million VND/m2.
According to this unit, in January 2022, apartment prices in Hanoi and Ho Chi Minh City increased from 1.8 to 4.4% compared to the previous three months. Prices are forecast to continue to increase from now until the end of the year.
According to statistics of Savills Vietnam, the price of mid-end apartments in Ho Chi Minh City is nearly 60 million VND/m2an increase of about 27% over the same period in 2021. Notably, there are a number of projects that have increased their selling prices by 11% in just the past three months.
According to Ms. Duong Thuy Dung, Senior Director of CBRE Vietnam, with the increase in input costs such as the price of construction materials, infrastructure and legal costs, etc., the project’s costs increase, it is difficult for real estate prices to decrease.
If calculated from the middle of 2021, iron and steel prices increase by more than 40%. In the construction cost of 1 m2 apartment, building materials account for about 60%, so no matter how much the price of building materials increases, the price of the apartment will also increase accordingly.
As of March 2022, the price of steel in particular and most of the construction materials such as cement, aluminum, asphalt, etc. had two price increases. The first cycle is around March 2021, steel prices start to increase from about VND 11,000/kg to the highest point of VND 18,700/kg. According to the latest quotation, just updated in March 2022, the steel price is approaching 20,000 VND/kg. Not only that, the prices of aluminum, bricks, cement, … and other materials are also updating new price list every day.
According to some experts, for those who own a house built before 2021, even if it is not affected by the input construction costs of the consecutive price increases of raw materials for 1 year, there is no reason. but they do not anchor their house prices to the market prices of those directly affected by construction input costs.
Pointing out the consequences from the increase in the price of construction materials affecting the real estate market, Mr. Dinh Hoai Nam, Specializes in Housing Project Development, analyzed: The first consequence that can be seen immediately is that a lot of construction contractors. Major projects such as highways, apartment buildings, etc. are approaching a dead end and have not found the exit yet. If you stop, you can’t, but if you continue to do it, the risk of bankruptcy is also very high.
Secondly, not only contractors, investors are also struggling with this fear of price increase. Will the game now be for the contractor to bear the price storm on his own or to pass some of the burden on to the buyer by setting a new unit price?
Many projects will accept to suspend or postpone the start-up plan when the market determines the price of new materials. As a result, the workforce, engineers and workers who have not been happy after the epidemic break now have to lose their jobs, or their income cannot keep up with this price storm.
“For the residential townhouse segment, a subjective paradox that still exists in the habits of many townhouse investors is that when signing a contract, they always want to be anchored at the present time and it is very rare. investors share the “incurred” due to material price slippage.Of course, their argument on the other hand is also reasonable: “When the price of raw materials decreases, the contractor will not give me a discount”. In case the contractor I know just signed a construction contract at the end of February 2022, the planned start date is March 11, 2022, but now the entire pile pressing, steel and concrete foundation has increased by nearly 10% but do not know how to present to the investor so that the new unit price can be updated,” said Mr. Nam.
Regarding the solution, Mr. Nam said that contractors, building material suppliers and homeowners need to “win – win – win” together, working together to overcome difficulties to bring the project to the finish line. nice instead of “Whoever dies, ignore them, as long as it doesn’t affect me”. For example, when signing a contract, include the material price bracket at that time. If during the construction process, the price of raw materials increases or decreases compared to the price at the time of signing the contract, this part will be divided with the owner. And of course, between the contractor and the building material supplier too.
According to Mr. Le Quoc Kien, a veteran investor in Ho Chi Minh City, the price of construction materials has increased. For works under construction, it is difficult for contractors to negotiate price support from landlords/investors. For new works that have not yet signed a contract, the contractor must certainly increase the construction price. And when the price increases, the public will certainly reduce the number of works because it affects the financial plan of people who need to build a house.
Along with that, for house builders, rising construction costs may affect their financial plans in building houses, while their incomes themselves have not caught up. This easily reduces their determination in building a house. For investors in the “Build a House – Sell” model, the house that has not yet signed a construction contract with the contractor will definitely have to increase the selling price to offset the increased cost of construction. Even though the house has signed a construction contract, it will also increase the selling price to make more profit from this “heaven and fall” opportunity, although they may not have accepted to support the construction price for this project. contractors due to the increase in raw material prices.
“The risk that the cost of raw materials will increase indefinitely also makes investors more reluctant to build houses, just want to see the land for it to increase in price, minimizing the risk of increasing input costs while it is difficult to accelerate the growth.” For example, instead of buying a land of 6 billion and then spending another 6 billion to build a house of 12 billion, they will tend to buy 2 pieces of land of 6 billion to 12 billion and then leave it alone. Waiting for an increase in selling prices.The fact that homeowners and investors who build houses for sale falter in their construction plans, which will also negatively affect the face of the city, real estate will only be land for sale. There are no wild grasses or makeshift shacks built,” said Mr. Kien.
This investor believes that the corollary of this problem is that in 2022 the supply of ready-built houses will decrease, plus inflation, the price of land-based houses in stable residential areas will increase by less than 20%, the demand for Buying vacant land will be higher than buying ready-made houses. Ready-built real estate, if you want to attract buyers, needs to have really different highlights in terms of location, potential for price increase, beautiful and classy design, construction quality, business ability to generate income, …
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