Many developers have ignored the idea of converting commercial condos into home-for-rent facilities as proposed by the Ministry of Construction in a petition just submitted to the Government, as the conversion is said to be not commercially viable.
In the petition, the ministry says that, besides converting commercial housing projects into low-cost homes, the development of the home-for-rent segment will help address the high demand of housing in cities on one hand and help developers reduce stock on the other.
Condo-for-rent schemes when in place will give more choices to tenants at home, especially low-income earners who cannot afford to own a home.
Five projects have been chosen for trial operation, including the Bee home project developed by C.T Group in HCMC’s Tan Binh District and the Binh Minh complex of Hoang Quan Consulting-Trading-Service Real Estate Co. in the Mekong Delta province of Vinh Long.
According to the construction ministry, condo projects for local workers in industrial parks will be leased out at VND35,000 a square meter a month as such projects are subject to land use fee exemption. Each person therefore has to pay some VND350,000 a month for a 40-square-meter room accommodating four.
As for schemes that aren’t entitled to land use fee exemption, the highest rent is VND65,000 per square meter a month, including maintenance and operation costs for the whole building.
However, property companies noted that with the aforesaid rent, the conversion of commercial projects or development of new ones for rent is unfeasible even when developers are exempted from land-related fee and are given soft lending rates.
Nguyen Van Duc, deputy general director of Dat Lanh Real Estate Co., said the problem facing industry insiders is their financial constraints, forcing them to mainly use money of homebuyers to construct housing schemes.
Not many enterprises dare to pour their own money into entirely constructing apartments and then sell the products or lease them out for monthly revenue, he said, adding several developers tend to rely on bank loans for investment capital instead.
With an apartment priced at VND13 million a square meter, Duc calculates that the rent prescribed by the construction ministry is merely enough for his firm to service a preferential loan rate of 6.5% annually.
In other words, if his firm borrows VND13 million to build a square meter for lease and if the lending rate is 0.5% a month, it will have to pay an interest sum of VND65,000 a month for banks. Therefore, the monthly rent of VND65,000 is barely enough to service the bank loan only, not to count other expenses. - Source: The Saigon Times Daily
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