Homeownership Remains Difficult Even for the Highest Earners

The Rising Affordability Crisis in Vietnam’s Housing Market

In the ever-bustling cities of Vietnam, the dream of homeownership appears to be slipping away from many, even the top earners. The general guideline suggests that no more than one-third of one’s income should be spent on housing, yet the reality is starkly different. According to the General Statistics Office, the monthly income for the top 20% is approximately VND 14.5 million (around US$571.4) in Hanoi and VND 13.3 million in Ho Chi Minh City (HCMC). With housing prices soaring, this guideline is increasingly difficult to follow.

The Cost of Homeownership

A recent report from the Vietnam Association of Realtors presents a troubling statistic: a typical 60-square-meter apartment in either Hanoi or HCMC costs an average of VND 3.5 billion. For couples looking to purchase such property, the financial burden becomes staggering. If they borrow around 70% of the property’s value at the current interest rate of 8%, their monthly mortgage payments would range from VND 25 million to VND 27 million. For couples earning a combined income of VND 30 million monthly—placing them in the top 20%—the result is alarming: their housing costs exceed one-third of their income, a threshold that should ideally be avoided.

Widening Income-Housing Gap

The Vietnam Association of Realtors aptly points out that if top earners face difficulties affording homes, lower-income groups find themselves almost entirely excluded from the market. This sentiment is echoed by a study from real estate platform Batdongsan, which indicates that an average worker in their 30s may need nearly 25.8 years to pay off the mortgage for a 60-square-meter apartment priced at VND 3 billion, assuming an interest rate of 4.5%. This stark contrast raises a fundamental question: how can Vietnam bridge the growing gap between incomes and housing prices?

The Price-to-Income Ratio Alarming Trends

Data from Numbeo, a global cost-of-living statistics platform, reveals that Vietnam’s house price-to-income ratio for this year stands at a staggering 22.8. Considered one of the highest in Southeast Asia, this ratio inversely indicates affordability. As prices rise, the ability of the average citizen to purchase property diminishes.

Factors Driving Housing Inaccessibility

A multitude of reasons contribute to the steep decline in housing affordability across Vietnam:

1. Rapid Price Increase: Housing prices have seen an astonishing increase of 59% over the past five years, while average incomes have only risen by 7% annually. The imbalance is glaring and unsustainable.

2. Shortage of Affordable Housing: The lack of housing priced below VND 30 million per square meter poses significant challenges. Developers prefer to focus on high-end projects, driven by higher profit margins, leaving a huge gap for average-income buyers.

3. Speculation in the Market: Property speculation is another culprit. Investors often purchase properties only to leave them vacant until prices increase, leading to inflated costs and resource wastage. Currently, Vietnam’s property tax ratio to GDP is a mere 0.03%, significantly lower than in many other countries, which further encourages speculative buying.

4. Mortgage Costs: Financing a home remains a challenge, particularly due to fluctuating interest rates. Home loans might begin with fixed rates but most transition to floating rates that can exceed 10%, imposing financial stress on borrowers.

Recommendations for Improvement

To tackle these challenges, the Vietnam Association of Realtors suggests that the government take proactive steps:

• Incentives for Affordable Housing: Encouraging the development of affordable and social housing is essential. Government incentives could spur developers to focus on lower-cost options that cater to a broader audience.

• Infrastructure Development: Improvements in transportation infrastructure could alleviate some pressure on urban centers. A transit-oriented development model, utilizing public transportation as a basis for growth, may encourage residents to settle in areas where affordable housing can be constructed.

• Comprehensive Tax Policies: A more robust tax policy could be implemented to regulate property prices and deter speculation.

By addressing these dimensions, Vietnam can begin to tackle the affordability crisis and provide hope for future homebuyers, ensuring that the dream of owning a home does not remain just that—a dream.