Condos for lease still far from reality

Although the Ministry of Construction is seeking ways to help enterprises and individuals develop commercial apartments for lease, investors are still facing many difficulties, especially high lending rates they have to bear when building these condos.

The ministry is fielding suggestions for the draft Amended Housing Law to complete the legal framework for this sector.

If the law is passed, local people who cannot afford to buy homes will be able to lease homes in long term while the realty market will have more products.

Potential

Lê Hoàng Châu, chairman of the Hồ Chí Minh City (HCMC) Real Estate Association (HoREA), said that the national housing development target should include condos for lease at around VND2 million each unit a month to meet the demand of low-income earners.

The products will also improve the property market and help local people adapt to home leasing culture like in other countries.

thaodienA view of Thảo Điền residential area in HCMC’s District with some commercial condo buildings

The draft law includes new articles that encourage enterprises to develop commercial condos for lease, and launching projects will various condo sizes onto the market to meet housing demands of residents.

The new law will also protect legitimate rights and interests of investors and tenants during the validity of the leasing contract.

Enterprises joining this sector will enjoy incentives such as land use fee exemptions or reduction, corporate income tax exemptions, and preferential credits.

In addition, investors are allowed to use the ground floor of apartment buildings for other services to compensate for management costs and sell homes after the leasing period.

In fact, investors have found commercial condos for lease unprofitable compared to direct sales that allow them to recoup capital quickly.

As a result, just a few enterprises have joined the market.

Lê Thành Construction Company is developing Lê Thành Tân Tạo project that will offer condos for lease in 15 years at VND240 million and in 49 years at VND350 million a unit.

Located in HCMC’s Bình Tân District, the project is expected to supply the market with around 1,000 condos for lease.

Customers will pay VND50 million when signing the leasing contract.

For the remaining, they will pay VND6 million each month without any interest rates.

Besides, C.T Group used to announce to develop condo project Bee Home in HCMC’s Tân Bình District for lease.

However, none of these projects has been completed so far.

As a big city with a fast pace of urbanization and a large number of immigrant workers and foreigners, HCMC has never seen the housing demand subside.

However, aside from small supplies from individuals, real estate investors have just focused on high-income customers, developing serviced apartments that are operated by foreign companies.

According market research enterprises, the city has nearly 4,400 serviced apartments of all types with rents averaging out at VND500,000 per square meter a month.

With the total area of around 260,000 square meters, the market generates around VND130 billion each month, or over VND1.5 trillion every year.

Challenges

Nguyễn Văn Đức, deputy director of Đất Lành Real Estate Company, said that it is necessary to set up the legal framework for condos for lease.

However, building these apartments actually is not simple.

Despite laws and incentives, enterprises are still hesitant at investment as home rents cannot offset high lending rates of banks, Đức said.

He said that it is ridiculous to compare home leasing ratios in other countries, at 70-80% of all home users, with Việt Nam.

This means that just a small part of residents of other nations buy homes while all Vietnamese people prefer to own a house.

The reason is that enterprises in those countries enjoy low lending rates at only 1-2% per annum while Vietnamese developers have to pay rates as high as 14-15% per annum.

With the high rates, enterprises could not step in the market though they want to.

For instance, an enterprise borrows VND15 million to build a square meter of middle-class commercial condo.

If it takes out bank loans at lending rate of 12% per annum, or 1% per month, it has to pay VND150,000 to the bank each month.

Meanwhile, that square meter is leased at only VND80,000-100,000 a month, Đức explained.

Another problem is occupancy. If investors cannot lease all apartments of a project, losses will pile up.

Besides, enterprises will have to pay maintenance fees and other fees during the leasing period.

To build commercial condos for lease, enterprises must find out capital sources at lending rate of around 5% per annum, Đức added.

By ĐINH DŨNG

Source: The Saigon Times Daily

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