Affordable Housing In Vietnam Economics Essay

ABSTRACT

This research is conducted to access the real estate market in Vietnam and find the appropriate marketing strategies for the affordable housing project by a famous real estate company. Addressing the question of what is demand for affordable houses or apartment in Vietnam now and the potential market for suitable apartments, the research has given findings about the real estate market in Ha noi and Ho Chi Minh City, Vietnam. Since then, the researcher identifies the critical marketing strategies for that company in order to grasp the great market share in Vietnam real estate market. There are many marketing tactics that have been planned and the implementation of both offline and online marketing strategies contributes to the success of many companies. Lessons and marketing strategies by both domestic and foreign affordable housing provider have brought other Vietnamese companies suggestion for its strategy to meet the increasing need for house.

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TABLE OF CONTENT

LIST OF TABLES

LIST OF FIGURES

CHAPTER 1: INTRODUCTION

1.1 Current business environment in Vietnam:

Vietnam economy is experiencing developing periods with high real economic growth rate of 6.8% in 2010. After two decade of reform, Gross Domestic Products of Vietnam see a sustainable increase and at the end of 2010, GDP of Vietnam has reached $102 billion. Although the country can not achieved miracle economic development like countries named as Tiger Asia, Vietnam is still acknowledged as one of countries which has potential strengths and an promising destination for world wide investor. UNTAD (The United Nations Conference for Trade and Development) has concluded that Vietnam is ranked as the sixth among ten attractive economics in term of investment in the world for the periods 2007-2009.

At this time, Vietnam enjoyed an important economic step in integrating in the world economy through joining the World Trade Organization in November 2007. This step has marked a new level for Vietnam economic development with many opportunities and challenges. The accession in to WTO and many changes in investment framework and business environment have jointly boosted the Foreign Direct Investment and Portfolio inflows into Vietnam. Thanks to the large contribution of private corporate sectors in investing and developing the economy, the economic achievement is expected high for the next few years.

In accordance with the quick development of Vietnamese economy recently, the increase in living condition of Vietnamese people also increases. People nowadays want to find a department or a house where each family will start a new family, a new home. Statistical data about Vietnam’s demography shows that the young population under 30 years old accounts for 55% of the population in Ho Chi Minh City in 2004 and this number will decrease to 50% in the next 10 years. However, the data shows that the number of young people still employs the great part in the demography. The demand for buying a house or department for settling their life also increases. People also have a new view about living in an apartment instead of a house. Living in modern apartment buildings becomes the preferable choice for young couples nowadays because of the good living environment, good facilities, good neighborhood and other advantages. In Hanoi, the demography also shows the same patterns and there are many young couple, getting married and choosing an apartment for living. People coming from other provinces to big cities like Hanoi or Ho Chi Minh city also choose buy or rent an apartment in high-rise building with the residential area around. With the population at the 13th in the world, the number of over 85 millions people will about to increase in the next few years. The needs for either high-end and low-end houses or apartments obviously increase in great number.

Concerning the income level, in 2009, the average income per capita of two cities has reached the number of 2.404 million dong per person per month according to the current price. In Hanoi, the income level achieves 2.321 million dong on average. Ho Chi Minh City is the biggest economic centre of Vietnam and it attains the highest GDP per capita. Average incomes of people in Ho Chi Minh City is about 2.445 million dong pro month (Vietnambussiness.asia, 2010). The pace of urbanization is forecasted to be rapid compared with other countries in the region. From 27% last year, it is expected to rise to 36% by 2020 and 43% by 2030. The working population will grow swiftly: in 2010 there will be nearly 9 million people aged 20-24 and some 8.5 million aged 25-29. Meanwhile the dependency ratio will fall, further enhancing consumer spending power (AC Nilsen, 2008).

In addition, infrastructure is also one of factors having impacts on the consideration of finding a house or an apartment. There are more and more public network, underground network being constructed. The face of big cities changes a lot especially after the assession of Vietnam to WTO. The availability of developed infrastructure is also thing to consider when Real Estate Company chooses to implement project in Ho Chi Minh City. The number of infrastructure construction project has been carried out such as the expansion of key streets and the new opening of street from the centre of the city to other areas, etc.

1.2 Overview of real estate market

In the critical economic context with a variety of obstacles and uncertainty, there are many things to consider when assessing the real estate business environment.

First of all, in the world real estate market, real estate bubbles has happened during the period 2000-2008. There are many countries involved in the case like America, Spanish, Thailand, China, etc and the real estate bubble has been expanded sharply, resulting in the bad influence for the economy and banking system. In Vietnam, the bad debt has risen to 2.52% in June 2008, increasing from the rate of 2.17% in 2008. Some countries in the South East Asia also suffered from real estate bubble’s impact. According to Han (2008), the average daily volume of real estate market fell, any housing price index drops. The bad influence for Malaysia’s economy has been provided. In other country, the real estate prices changes with different trends. The housing prices go up in China from 2000-2004. The same scenario also happens in Vietnam with the time of real estate booming. Vietnamese government has taken necessary step to control the asset bubble in big cities. The bubble is motivated by the quick economic growth, the shortage of house and apartment and the weaknesses in management of Vietnamese government. However, the government has implemented some necessary methods to control the problem, timely prevent effect of global economic slump. Tightening the monetary policy is the effective methods that Vietnamese Government has implemented

For real estate sector, this sensitive and profitable sector receives a lot of attendance from foreign and domestic investors. There are more than 20,000 domestic real estate enterprises, which imply that the real estate market is an effervescent playing field. Especially, when the demand and price for real estate increase, this field attracts the entering of multinational companies in the world, making this sector jumping into an intensive competition. In Vietnamese market, it can be seen that there are many foreign companies coming from Asian countries like Singapore, Japan, Malaysia, China, Taiwan,. According to Batchelor (2007), both multinational and local enterprise in this sector are enjoying piece in real estate pie. How this competition will be going? Whether foreign firms or local firms will dominate the market? The answers depends on future development of this sector and the way each company improves themselves or not and win in the game of competition.

1.3 Research Problems

Literature review on the real estate and marketing strategy for real estate sector will be written about how the Vietnamese and real estate firm choose methods to market their products and services and the effectiveness of those methods? Marketing strategy can be seen as a road map for the company especially when the market demand changes and business environment varies. Nilson (1995) said that in order to success on a market, especially a changing one, companies have to use proactive strategies. To turn disadvantage of the recession into advantage for the firm, proactive marketing can be the way (Srinivasan, 2008). Real estate companies have set up many marketing activities; however, the effectiveness of those tactics is still limited. Especially when the number of real estate companies which offers a wide range of real estate products: house and apartment and target at different market segmentation, the findings of appropriate strategies will help their customers approaches affordable housing project more easily. The research will aim at finding out the marketing strategy can be seen as proactive strategy for a company in the new business environment

1.4 Research Questions

How is the marketing strategy to develop the affordable house and department market?

1.5 Research Purpose

The purpose of this research contains:

The evaluation of affordable housing marketing situation

Develop an appropriate marketing strategy for a company to complete its objectives of marketing for the new product: affordable house and department increase the sales and the reputation of the company.

1.6 Definitions:

Real estate and real estate market:

By definition, real estate is the term indicating “immovable assets”. They often refer a piece of land and anything attached to it like the air above it and the ground below it and any building or structure on it like fixtures, roads, utility system, wall etc. Often, they are those things immovable or hard to movables and they can be bought, leased, sold or transfer totally or separately. They are called as a legal designation and is subject to legislation (investorworld.com). House and apartment is also included as the term mentioned.

Real estate market is defined as where the potential buyers and sellers of real estate gather at the current time, and the current transaction activity for real estate. It includes markets for various property types, such as housing market, office market, condominium market, and land market (BusinessDictionaries.com)

Affordable housing

Affordable housing is the new definition which is often appear on the project of governmental organization for house. As the HUD (US Department of Housing and Urban Development) defined: “Affordable housing includes social rented and intermediate housing, provided to specified eligible households whose needs are not met by the market”. (Planning Policy Statement3, 2010 ). In more specific word, affordable housing should meet the needs of eligible households including the availability at a cost low enough for them to afford and determined with regard to local incomes and local house prices. This kind of home still remains at affordable price for future eligible households.

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1.7 Deliminations

This research paper still contains some limitations. Because the sector to focus here is real estate sector; therefore, consumer behaviors are also different from other manufacturing sector. Consumer behavior is also not deeply examined since the author does not want to make the research more complicated. Changes in marketing and business model to new forms will be explained and discussed.

1.8 Summary

CHAPTER 2: LITERATURE REVIEW

2.2 Vietnam Real Estate Market and affordable housing market review

Vietnam Real Estate Market has a long periods of developing since the “Doi Moi ” policies by Vietnamese government and the integration of Vietnam economy into World Trade Organization. Vietnam has achieved high economic growth with many successes in the process of industrialization and modernization. The foreign direct investment into Vietnam increases in term of the number and the amount of financial sources. Therefore, the economy has many opportunities and challenges. Statistical data shows that one of sectors receives huge amounts of FDI is real estate sector.

In 2008, the world faced the global financial crisis and Vietnam is not out of the negative influences. High inflation rate, instable domestic economy and ineffective government policies results in a saturated period for the economy. Even, the increasing inflation threatened Vietnamese economy with the liquidity problems. Vietnamese real estate sector also experienced up and down periods. However, in the difficult economic situation, the demand for low-priced and affordable house in big cities still increased. The project for such kind of affordable house is still limited due to many barriers in the legal framework. Low-priced house is more taken into consideration with many projects or low-income housing program operated by the government. There are not many investors or companies invest to build affordable house when approaching Vietnamese market, also only focused on the luxurious housing and apartment. Under Vietnamese law and program, low-priced apartment often has 45m2 with the price of about VND 7 million/m2 from the period 2009-2015. So, the total payment for an apartment about 45m2 is from VND 300 million to VND 350 miliion. The selling price to the end-user will be much higher at the profit rate by 10% (Huy, H, 2008). However, the low-priced housing program still can not satisfy the high demand for house of urban people. In addition, some the low-priced house project under governmental low-income housing program has low quality. The people of middle income and low income people still have desire to live in an apartment with good quality, good living environment with a good price. A good price means the price they can afford, higher than low-priced house with better quality of product and services.

Such big cities like Hanoi, Hai Phong, Ho Chi Minh City, etc are where the demand for affordable house for low and middle income people increases especially when the flow of immigrated people in those city increases. Vietnam National Housing Strategy has been prepared to solve the problems of housing for middle and low income people in Vietnam. One of the biggest problems concerning the housing program is the lack of financial resource and the budget control, resulting in the lack of a complete solution for moderate or poor people can address their desired house (Hien, N., 2002).

There is a program named “Mixed income housing” carried by TE Enterprise with the goal of providing house for medium and low-income households. The joining into Vietnamese house market for middle and low income people marked the first steps for other investors who want to exploited the housing marketing for middle and low income people in Vietnam.

2.3 Marketing Strategy

2.3.1 What is marketing strategy?

Marketing is very important activity for a company in order to approach their customer and make profit by selling products or provide services. Marketing concept comes from the word “market” and Kotler (2005) has defined that marketing is a process by which individual and groups obtain what they need and want by creating and exchanging products and value with others. There are many kinds of marketing tools that can be divided into online and offline marketing. Offline marketing often contain traditional marketing tools like advertising, sale promotion, direct mail, etc (Smith and Taylor, 2004). Online marketing also includes such forms of marketing, but they are in the online mode and the underlying platform could be website, search engine, email marketing, etc

Marketing strategy plays an important role in the business strategy of a company which wants to compete in the market. A strategy is used to create competitive advantage. With a good strategy, a company will work better or vise versa. Marketing strategy addresses the customers and presents how the firms will fulfill the demand and expectation of them as Ferrell and Hartline (2002) has defined that marketing strategy is a plan for how the organization will take advantages of its strength and capabilities to match the needs and wants of the market. A marketing strategy consists of market segmentation, market targeting and positioning. Starting with defining market segments, then developing and positioning products in the targets market, a market strategy seeks effective responses in order to change market environment (Hooley, Saunders, Piercy, 2004). Talking about marketing strategy, Weinstein (2004) has stated that segmentation is the key marketing activities to obtain the desired results of retaining more customers, upgrading more customer relationship and obtain more customers. To have best strategies, Porter (1980, 1985) has emphasized the industry characteristics as what the firms should focus on. In other word, Porter meant factors drives the industry competition were profitability. From the different perspective of Wernerfelt (1984) and Prahalad and Hamel (1990), the firms who want to have best strategies should focus on the core competencies of the organization. Accordingly, it’s the resource of the firm that will drive the performance of the organization. Resource-based marketing is another theory that addresses both market and the company’s capabilities to consider for the best strategies. Researchers including Hooley, Piercy &Nicoulaud (2008) has discussed this approach, targeting a long-term fit between the requirements of the market and ability of a firm. However, these two factors are both changes in the long run. Basically, a marketing plan often start with the analysis of current situation of the target market to identify what the market wants and want the company can meet their needs. Internal environment, customer environment and external environment are what a marketing strategy should consider. Once understanding the situation, the company will use the marketing mix to address the customer’s needs and appeal them with the products and services that it offers.

Marketing strategies will determine the choice of market segment, positioning, marketing mix, etc…The following are major issues that relates to marketing strategies

2.3.2 Strategy Analysis

Strategy analysis plays the critical roles in order to evaluate the current situation of a enterprise and set the future direction to the success of a strategy. Before formulating a strategy, the strategist needs to identify the accurate evaluation of where the firm currently is and where the firm will go to. Since then, an ambitious strategic plan will identifies what’s necessary to achieve the company’s strategic intent. There are a number of tools to do strategic analysis for analyzing the current internal and external environment of the firm, typically Porter’s value chains and Ansoff (1957)’s matrix.

2.3.3 Formulating a strategy

2.3.4 Implementing a Strategy

2.4 Summary

CHAPTER 3: METHODOLOGY

3.1 Research Philosophy

3.2 Research Strategy

3.3 Research Method

3.4 Research Methodology Approach

3.5 Summary

CHAPTER 4: FINDINGS AND ANALYSIS

4.1 Questionaires

4.2 Case Studies

4.3 Findings

4.4 Analysis and evaluation

4.5 Summary

CHAPTER 5: CONCLUSION AND RECOMMENDATIONS

5.1 Conclusion

5.2 Recommendations

5.3 Limitation of the study

BIBLIOGRAPHY