ĐỀ XUẤT ÁP GIÁ TRẦN VỚI NHÀ Ở XÃ HỘI: CHÍNH SÁCH DỄ PHẢN TÁC DỤNG / PROPOSAL TO IMPOSE PRICE CEILING

The proposal to impose a price ceiling on social housing has stirred public debate, drawing both support and criticism. Experts warn that this may result in financial losses for investors and in the end, the citizens are the one who suffer from damages; while evaluating a policy’s effectiveness requires not only assessing its objectives but also its practical feasibility.

The law has stipulated the limit of profit, imposing a price ceiling becomes unnecessary

In the appraisal report on the draft Resolution piloting specific mechanims and policies for the development of social housing, currently under conssideration by the National Assembly at its 9th session, the Ministry of Justice proposed that the Ministry of Construction introduce a price ceiling on social housing for sale and lease. The aim is to enhance housing accessibility for the general public.

Although the intention behind the proposal is commendable, enabling low-income individuals to purchase housing at reassonable price. However, the impose of price ceiling on social housing means that the State directly sets a fixed maximum price regardless of market fluctuations and input costs could have unintended negative consequences.

Speaking with Realtimes, Mr. Le Huu Nghia, Director of Le Thanh Real Estate Company, stated that imposing a rigid price ceiling on social housing does not align with market dynamics and may deter businesses from developing social housing projects. Thereby, reducing supply and worsening access for public.

Mr. Nghia explained that there are two types of social housing projects: Those developed on state-allocated land and those where enterprises purchase land using private capital. The investment costs for these two projects types differ significantly. “Therefore, if imposing a uniform price without considering this factor, it is clearly unreasonable and unfair to private investors”, he noted.

Additionally, land prices of local areas are different. For example, in Ho Chi Minh City, the land price may reach tens of millions of VND per square meter, while in adjancent province such as Binh Phuoc, the land price can be as low as one million VND. Even within a city, the land price between central and outlying areas is substantial. “How can a single price ceiling be applied across such varied conditions?” Mr. Nghia questioned.

Beyond land costs, factors such as high-rise or low-rise building design, with or without basement, and investment in finishing materials also greatly impact final pricing. Thus, if an unrealistic ceiling controls, many enterprises desiring to invest in social housing with high quality, comparable to commercial units would become difficult. Meanwhile, public expectations for quality housing continue to rise.

“With rising input costs – including land price, materials, labor, and load interest – fixing a maximum selling price further squeezes already thin profit margins. Under current conditions, imposing a price ceiling won’t lower prices for buyers but will likely drive developers away from this segment for not resolving the financial problem”, leader of Le Thanh Estate Company supposed.

Lawyer Le Cao, managing partner at FDVN Law Firm, echoed concerns about the proposed ceiling that the impose of price ceiling on social housing does not completely an effective solution, the policy may prove counterproductive without comprehensive evalution on the other hand.

First, for state-funded projects, setting a price cap may be justified. However, for privately funded projects, it poses a significant barrier. Lawyer Le Cao stated that each project faces unique circumstances, investment costs, land costs, scale, design… are not the same, making a one-size-fits-all ceiling impractical. Without a flexible and detailed criteria framework, the impose of price ceiling shall make investors not have enough profit, leading to fear and refusal to participate. This goes against the law of supply and demand and the principles of market operation.

Second, the Law on Housing 2023 has already stipulated a maximum 10% profit margin on the investment costs in building social housing. This means that investors have been controlled on the profit, can not reap excessive profits. To regulate prices, the State can utilize tools such as planning, design appraisal, investment licensing. “Adding a ‘rigid price ceiling’ only increases procedures, creates complex, unnecessarily”, Lawyer Cao emphasized.

Third, to control the price meaningfully, the significance is to control the investment costs. By analyzing construction costs, land value, and investment estimates per project, the State can completely determine fair pricing without imposing a price ceiling. Given regional variations in investment costs, investment conditions, rigid price ceiling may undue pressure on investors. Therefore, the quality of constructions will most likely be the trade-off.

Clearyly, the impose of price ceiling on social housing is well-intentioned, yet on other aspects, this constitutes deep interference in business operations, while the current tool margin tool is sufficient to control the profit margin. In the period when it is necessary to mobilize all social resources to develop housing for low-income citizens, it is significant to create motivation for businesses instead of tightening regulations, creating more pressure to make them leave this field.

Creating motivation instead of presurre

According to the experts, instead of rigid administrative interference like price ceiling, social housing policies should incentivize developer participation by adjusting financial mechanisms and removing legal stopper. One such example is the proposal to raise the profit cap to 13%.

According to the Law on Housing 2023, developers of social housing projects are entitled to a maximum 10% profit on total investment. However, the draft Resolution on piloting a number of specific mechanisms and policies for social housing development, the Ministry of Construction proposes increasing this cap to 13%.

This proposal on increasing profits margin of social housing projects of the Ministry of Construction is seen as reasonable and well-founded. Because this is not for “increasing house price”, but to offset actual costs and boost the attractiveness of the social housing segment for enterprises, which has long been neglected by developers.  

“As long as real developer engagement is lacking, the goal of constructing hundreds of thousands of social housing units annually will be unattainable if we rely solely on public funding”, Lawyer Cao emphasized.

Still, expert specifically noted that, proposing to raise profit incentives to a higher level to attract businesses to invest in social housing is necessary, but not sufficient. In practice, many enterprises remain hesitant due to the complex procedures lasting years.

“From investment approval, land allocation, construction permit… are complex procedures, and often drag on for years. Some projects remain stalled for multiple years due to resolved procedures”, Lawyer Cao cited.

Thus, to attract enterprises, the State must go beyond profit margin adjustments and focus on creating a business-friendly environemnt – one where enterprises can serve both market and social goals without being entangled in red tape.

If the administrative procedures is steamlined, project preparation timelines is shortened, enterprises would not have to bear too many tangible and intangible costs for “procedures”, their interests will be enhanced. That is the substantable motivation for businesses to accompany the State in implementing social policties.

“If only loosen the profit ceiling without removing procedural stopper, the problem on attracting enterprises can not be solved completely”, Lawyer Cao affirmed.

Mr. Le Huu Nghia supposed that the increase of profit margins from 10% to 13% is necessary, yet enterprises care about the shorten of projects implementing rather than profit margins 10% or 13%. As a social housing project from the step asking for approval to the completion step does not last under 5 years. This time is seen as too long, costing many tangible and intangible expenses for businesses.  

“If procedural continues to last for years, even a 3% increase in allowable profit will not be enough to make social housing development viable” Mr. Nghia said.

Response to suggestion of the Ministry of Justice, the Mnistry of Constrution recently stated that the regulations on price ceiling purchase and lease social housing “need to be reseached and evaluated carefully”.

According to the Ministry of Construction, the Law on Housing 2023 has stipulated the social housing rent including maintenance expenses, and these are to be negotiated between developers and tenants within the pricing framework established by provincial People’s Committee. Therefore, the Ministry of Construction recommends not adding a fixed price ceiling at this stage and instead continuing to evaluate its potential impact.