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Millennials finding home ownership difficult

Released at: 08:08, 10/04/2018

Millennials finding home ownership difficult

Photo: Viet Tuan (VET)

Vietnam's housing ownership rate higher than some developed countries but remains difficult without family support, according to Savills Vietnam.

by Khanh Chi

Across large parts of the world, Generation Y is struggling to get a foot on the property ladder without help from parents or grandparents, according to Ms. Sophie Chick, Head of Residential Research, Savills Sydney, and Mr. Duong Duc Hien, Director of Residential Sales, Savills Hanoi, who examined the issue from the perspectives of two different markets.

In emerging Vietnam, according to the mid-term Population and Housing survey, the home ownership ratio was 90.8 per cent in 2014, down slightly from 92.8 per cent in 2009. A closer examination, however, indicates that this high ratio is the result of inheritance or significant financial support from the older generation. Mr. Hien believes that without this help, home ownership for under 35s is challenging.

“Admittedly there is a gap between young buyers’ incomes and housing prices in major cities like Hanoi and Ho Chi Minh City,” he said. “A mid-end two-bedroom apartment in Hanoi costs between $140,000 and $200,000, close to the average in developed markets, while the average income in Vietnam is nowhere near the level in those markets.” Family support clearly plays a large role in the financial capacity of young homebuyers in Vietnam.

Housing affordability has become a worldwide issue since the global financial crisis (GFC) a decade ago, partly because mortgage lending has been significantly curtailed by regulation. It is the younger generation, usually needing the highest loan-to-value ratios and loan-to-income ratios, who are most affected.

This has become evident in developed markets. In Australia, the share of homeowners aged 25 to 34 is 45 per cent (it was 58 per cent in 1986); much lower than in Vietnam. In the US, the current rate is 31 per cent for under 35s, against 39 per cent in 1995, while in the UK, only 5 per cent of housing equity is owned by under 35s, who are now paying four and a half times as much in rent to landlords as they are in mortgage interest.

Ms. Chick believes this generational effect goes beyond the GFC and “is symptomatic of how equity has become concentrated in older generations through a history of home ownership, mortgages and price rises.”

“Meanwhile, younger ‘equity have-nots’ find it increasingly difficult to access owner occupation, requiring large amounts of equity to fund rising prices and higher deposits. Generation Y (aka Generation Rent) is having to delay life choices such as marriage and parenthood, and one of the essential requirements to become a home purchaser now is a dual income, despite the low interest rate period seen post-GFC.”

This will be a particular issue for developed economies, but not irrelevant to recently emerging ones such as Vietnam. Ms. Chick expects that the scarcity of equity among first-time buyers and limits to affordability in many Western countries will act as an effective ceiling on house prices and lower price growth will be the result. For Vietnam, Mr. Hien believes this issue will encourage buyers to use financial leverage, which is yet to be common. The growth of Vietnam’s economy in coming years will hopefully increase average incomes and bring them closer to housing prices.

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