Pricing newly built commercial house at investment, construction and trading house enterprises

So, Pricing for newly- build commercial housing at investment, construction and trading house enterprises may be interpreted as follows: Pricing for newly- build commercial housing at in

1

CHAPTER I INTRODUCTION 1.1 Urgency of theme

With the unique characteristics of their, housing is a particular product and evaluated

based on its own principles and methods for this product In fact, pricing newly-built

commercial house at investment, construction and trading house enterprises that still many

shortcomings specific issues such as: In 2007, The market has witnessed many housing

projects which customers queue to be scrambling to sign up to buy apartments for example:

Vista, Sky Garden, Hoang Anh Gia Lai etc in Ho Chi Minh city; or Nam Cuong project on

extended Le Van Luong road in Hanoi in 2009; meanwhile, there are plenty of quality

housing projects, purchase conditions and equivalent positions, especially some of the

projects located adjacent position above projects, it's even on sale earlier but there is little

customer interest

One of the main reasons leading to above situation is due to the enterprise applied the

comparative method newly- build commercial housing, but this method is built on the

inconsistency views about newly- build commercial housing, supply and demand

relationship and the housing value of its A few Enterprise have also used the results of a

regression function when pricing, however, usually remains localized in a region or a

boundary line, which is not associated with the typical parameters of the urban structure

specific, so can not make important predictor of price variation of c newly- build

commercial housing in the size of the whole city So, a question arises: What pricing models

that suit newly- build commercial housing and What should be the model for effective

application in Vietnam

Stemming from these reasons, the author of the thesis has chosen the theme: “Pricing

newly-built commercial house at investment, construction and trading house enterprises”

for his research projects

1.2 Research Overview

1.2.1 Synthesis of research works related to research subjects

1.2.2 Comments and evaluation of research works

1.2.2.1 Theoretical Foundations

Most research works are based on the fundamental basis of the methods, principles

and processes underlying the valuation of real estate;

1.2.2.2 Research Methodology

Through the research process and learn about the work that shows: Most studies have

applied both methods to locate research & quantitative; in which the majority of studies

were carried out in-depth research into specific situations, and collecting data through

observation techniques to use for regression analysis

1.2.2.3 Contributions and the relation of research works

- The basis for determining the price of housing and methods of determining the price

of housing is the most important platform as a basis for determining the base price

- Scientific studies have shown the complexity of newly- build commercial housing

prices, because pricing newly-built commercial house particular and general real estate

prices affected by many factors

2

- Scientists have shown the process, principles of real estate valuation, however has yet to be processes that and principles of newly- build commercial housing prices

1.2.3 These restrictions & gaps need to continue research

- Research has not verified comparisons & research at prices that offer, whether there really perfect fit and with the prices that businesses have come up or not

- These research just mentioned aspects and find out the rules for their views in a specific market

- Some authors impose its views before executing research, therefore, the research process are oriented standpoint and results from previous studies is the lack of objectivity

- The valuation of real estate for newly- build commercial housing not have any research that go into a full research

- Pricing newly-built commercial house mainly qualitative experience for pricing

- Organizations pricing has yet to be unity

- The World showed quantitative models for pricing applications, however, it is only suitable for the world, for the real estate markets have developed high stability, the conditions applied in Vietnam does not yet have a specific research

1.3 The purpose and meaning of the thesis

1.3.1 The purpose of the thesis research

Analysis and evaluation of the current state of pricing newly-built commercial house

at investment, construction and trading house enterprises, from there, giving solutions and recommendations to complete this work

1.3.2 Meaning of thesis research

- Making reference to those who are interested in newly- build commercial housing

- Help for Enterprise's managers have a more scientific basis for pricing newly-built commercial house to reference in the process of decision making for the management and trading

1.3.3 Research Questions

- What’s pricing newly-built commercial house at investment, construction and trading house enterprises, there problems and inadequacies exist? What causes lead to the problems and shortcomings that exist?

- Housing prices have valuation, whether in accordance with market needs and ensure business goals or not?

- What're factors affect to pricing of pricing newly-built commercial house at investment, construction and trading house enterprises?

- Construction investment and trading house Enterprise, What does it take to complete the job?

1.4 Subjects and scope of research 1.4.1 Research Subjects

Pricing work for newly- build commercial housing at investment, construction and trading house enterprises

1.4.2 Scope of the research

- Thesis research on newly- build commercial housing at investment, construction

and trading house enterprises

- Thesis limited in scope in the field of research on newly- build commercial housing

at investment, construction and trading house enterprises focused on the period 2008 –

2012

1.5 The research results are expected

Based on the research objectives have been set out, the thesis is expected to contribute

the following new features:

- Summary of factors affecting to newly- build commercial housing from it as a basis for

determining the variables for building serves regression

- Proposed solutions to improve and resolve the outstanding issues in newly- build

commercial housing at investment, construction and trading house enterprises

CHAPTER II RATIONALE OF PRICING NEWLY- BUILD COMMERCIAL

HOUSING AT INVESTMENT, CONSTRUCTION AND TRADING HOUSE

ENTERPRISES

2.1 Pricing newly- build commercial housing at investment, construction and trading house

enterprises

2.1.1 The concept of pricing for newly- build commercial housing

2.1.1.1 The concept of commercial housing

Article 3 of Government’s Decree No 71/2010/ND-CP date 23 June 2010 specified

“Commercial housing investment and construction for sale and leasing demand and market

mechanisms by organizations and individuals of all economic sectors; in which, housing

investment and construction for sale and leasing will have two basic forms of investment is

entirely new construction and the renovation, remodeling and upgrading” (12)

2.1.1.2 The concept of pricing for newly- build commercial housing

• The concept of property pricing

Property pricing meaning as assessing the value of property in accordance with the

market at some point, given time in accordance with the standards of the Vietnamese

or international practice

• The concept of real Estate pricing

Real Estate pricing meaning as estimate the value of real estate in the form of a

specific currency for a purpose defined in the specific conditions and on a certain

market with the appropriate methods

• The concept of house pricing

House pricing meaning as the estimated value of a home is determined by a form of

currency for the purpose of use has been identified, at a specified time

• The concept of pricing for newly- build commercial housing

Pricing for newly- build commercial housing may be interpreted as follows: Pricing for newly- build commercial housing as Owner of investment projects in building valuation for sale or lease in a specific, at a specified time based on technical criteria, the nature, the location, size of the current situation there and to follow the market mechanism at the time of pricing

So, Pricing for newly- build commercial housing at investment, construction and trading house enterprises may be interpreted as follows: Pricing for newly- build commercial housing at investment, construction and trading house enterprises is using valuation methods at the time of valuation businesses need to meet the business objectives of the enterprise

• Time pricing for construction investment and trading house enterprise:

Typically, construction investment and trading house enterprise will pricing for newly- build commercial housing in 03 times in project investment process that is: Pricing service for the construction of the project document, pricing at the time of the mobilization of investment capital for the project and the selling price when completing projects

- Pricing for newly- build commercial housing for the construction of the project

document

- Pricing for newly- build commercial housing at the time of the mobilization of

investment capital of customer under the regulations

- Pricing for newly- build commercial housing at the time of complete frame

2.2.2 The purpose, principles and characteristics of pricing for newly- build commercial housing at investment, construction and trading house enterprises

2.2.2.1 The Purpose:

The construction investment and trading house enterprise through pricing to perform their goals That goal could be: To survive during the economic downturn, to earn maximum revenue ahead, to occupy the leading position

2.2.2.2 The principles of pricing for newly- build commercial housing 2.2.2.3 The characteristics of pricing for newly- build commercial housing at investment, construction and trading house enterprises:

- Pricing for newly- build commercial housing not only adhere to pricing techniques

but also for the purposes of pricing

- Newly- build commercial housing is types of assets can not be moved, so the valuation process must have access to the investigation stage, site survey, at the place where the immovable property – subject of pricing

- Each newly- build commercial housing is a unique property (at least in terms of location) reflect the profitability difference between them

2.2 Organizational processes and pricing methods of newly- build commercial housing

at investment, construction and trading house enterprises

2.2.1 Organizational processes of pricing for newly- build commercial housing at investment, construction and trading house enterprises

5

• Group 1:

The Enterprise will be established on the basis of mobilizing the members of the

relevant functional departments in the enterprise, after specialized team pricing and price

proposals for Enterprise’s leaders to decide

• Group 2:

Enterprise’s leader will be based on the information provided by the department

functions in providing Enterprise to conduct direct pricing and decide on prices for

enterprise's projects which are carried out investment

• Group 3:

Model of organizational processes pricing for newly- build commercial housing, this

group be done as group 2, however, the difference of this group as before Enterprise’s

leader pricing decisions, enterprise will rent prices evaluation furniture conduct the

proposed pricing to the leadership Team of Enterprise

• Group 4:

For this group, the organization of business valuation organization renting the entire

independent pricer to pricing, Enterprise based on price of independent pricer to

decide on pricing

2.2.2 Pricing methods of newly- build commercial housing at investment, construction

and trading house enterprises

Current, pricing methods of newly- build commercial housing in Vietnam still the

most commonly used as comparative method and cost method In the framework of the

thesis, author will analyze three basic methods are comparative method; cost method and

method investments Two other methods are profits and surpluses are generated by the three

methods above method

2.2.3 Hedonic method

a Rationale

Hedonic is used to describe “The proportion of the relative importance of the

different components in comparison with other components to create performance

indicators on capacity

and desired” ( Goodman, 1998:292 (59) Rosen (1974: 34) (87)

b Theoretical background hedonic pricing model

In a study in 2003, Malpezzi (78) has had a profound statement about the

development of theoretical hedonic pricing model He pointed out, hedonic model is an

estimate of the value of many individual elements Hedonic equation not only measure the

factors that influence preference measure but buyers how to impact house price

c The early history of the hedonic model

d Facts about the research & application of hedonic models

e The components of hedonic models

Since the process of understanding the above research shows, the majority of studies

applying hedonic models have focused on factors affecting housing prices as: The location

6

and structure of the house, neighborhoods and their properties Here author will clarify on this research

• The first: Location Property

• The second: Structural Property

• The third: Residential Property

2.3 Factors affecting pricing in newly- build commercial housing

Objectives and production costs of Enterprise; Psychological factors of the customer to accept price; organizational methods and pricing procedures in newly- build commercial housing; Selecting the appropriate pricing methods , information systems pricing; workforce; elements of natural conditions; regulatory environment - mechanism and policy; Economic environment; operation of the real estate market; development trends of the real estate market, pricing perceptions of the factors that affect price of newly- build commercial housing

CHAPTER III RESEARCH METHODOLOGY

3.1 Theoretical framework and research approach

Based on the overview of the research in pricing for newly- build commercial housing at investment, construction and trading house enterprises to identify research problems, making the dissertation research framework as follows:

3.1.1 Theoretical framework

Diagram 3.1: Conceptual framework for research on pricing for newly- build commercial housing

3.1.2 Framework and research approach

Content of pricing

for newly- build

commercial

housing

Organization for pricing for newly- build commercial housing at investment, construction and trading house enterprises

The objective of the work completed pricing for newly- build commercial housing at investment, construction and trading house enterprises

- Characteristics and

principles of pricing

for newly- build

commercial housing

- General model of

pricing organization

of newly- build

commercial housing

- Process pricing

framework of

newly- build

commercial housing

- Pricing method of

newly- build

commercial housing

- factors affecting

pricing for newly-

build commercial

housing

- Policy & bases of enterprise in pricing for newly- build commercial housing

- The basic organizational model has been implemented in the pricing process by construction investment and trading house enterprise

- The process of pricing newly- build commercial housing has been implemented by Enterprises

- The level of use and effectiveness of the valuation methods used by the enterprise

- Policies, methods and basis after adjusting pricing newly- build commercial housing

- Selecting and building organizational model valuation in accordance with enterprise

- Adjust & build process for pricing newly- build commercial housing to ensure scientific and minimize costs

- Selecting and applying for pricing methods of newly- build commercial housing consistent with the characteristics of business and scientific grounds, flexibility and high feasibility

- The conditions and personnel; legally database information to respond &

perfect target

Diagram 3.2: Research framework on pricing for newly- build commercial housing to

complete the pricing work of newly- build commercial housing at investment,

construction and trading house enterprises

3.2 Research Process

To accomplish the research objectives, Thesis research conducted in accordance with

the following (Diagram 1.2):

Diagram 3.3 : Research Process of thesis

3.3 Research Methodology

To solve the problem in accordance with the study research objectives, the thesis uses the following main methods:

3.3.1 Methods of analysis, comparison and synthesis 3.3.2 Experts Methodology

3.3.3 In-depth interview method 3.3.4 Quantitative method

Research overview and consulted experts in the field of real estate

pricing

Identifying a research subjects Framing theory of pricing for newly- build

commercial housing

Interviews and opinions of experts assessed property In-depth interview leader; appraiser of pricing for newly- build commercial housing at investment, construction and trading house enterprises

Interview clients to identify the factors affecting to pricing of newly- build commercial housing

Investigation by questionnaire for customers who have purchased newly- build commercial housing in projects belong to Hanoi city

Situation analysis of pricing for newly- build commercial housing at investment, construction and trading house enterprises

Assessment of the status of pricing for newly- build commercial housing at investment, construction and trading house enterprises

Proposed solutions to improve pricing work of newly- build commercial housing at investment,

construction and trading house enterprises

9

CHAPTER 4 ACTUAL STATE OF PRICING NEWLY-BUILT COMMERCIAL

HOUSE AT INVESTMENT, CONSTRUCTION AND TRADING HOUSE

ENTERPRISES

4.1 Overview of housing development in Vietnam over the past years

4.1.1 Results of housing development over the past years

With the polices that the State has promulgated over the past years, the sector of housing has

obtained encouraging results Such results can be evaluated in the following aspects:

- About number of houses and system of urban areas

- Growth of number of houses nationwide

- About system of urban areas nationwide

- About growth of number of houses in urban and rural areas

4.1.2 Growth of area of house

- In the national boundary

- Comparison between urban and rural areas

4.1.3 House quality and flat size

4.1.4 About housing finance

4.1.5 Scale, capacity of enterprises taking part in housing development

The number of real estate enterprises increases by 20-50% annually By 2012, the

number of real estate enterprises has increased by 5 times compared with that in 2002

4.2 Actual state of pricing newly-built commercial house at investment, construction

and trading house enterprises

4.2.1 Actual state of commercial house prices in Vietnam

Actual state of prices of commercial house for sales

For the market of flats

- On Ho Chi Minh city market

- On Ha Noi city market

Actual state of prices of commercial house for lease

4.2.2 Actual state of policy and basis for pricing newly-built commercial house at

investment, construction and trading house enterprises

4.2.2.1 Policies of enterprises of house pricing

Like other trading enterprises, when pricing newly-built commercial house, the

enterprises have considered the following policy viewpoints on pricing house which is

determining prices for new products, determining prices with discount and compensation

4.2.2.2 Basis for determining house prices of investment, construction and trading house

enterprises

- Construction unit price

- Framework of land use right transfer price

- Interest rate for bank loan

- Relationship of housing supply and demand

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4.2.3 Actual state of organizational model of pricing commercial house at investment and trading house enterprises

The actual research shows that no enterprise acquires a complete organizational model of pricing The majority of enterprises only establish pricing groups when implementing projects and then such groups dissolve after determining selling prices for those projects

4.2.3 Actual state of organizational process of pricing commercial house at investment and trading house enterprises

The actual research and learning about pricing at investment, construction and trading house enterprises show that all of the 4 groups of process illustrated in section 3.2.3.1 of the thesis are applied However, the number of enterprises applying the groups of process are different and so as the degree of thorough application of such process The degree of application of each process group of enterprises is expressed by the investigation data as:

Table 4.3: Ratio of investment, construction and trading house enterprises’ application of groups of newly-built commercial house pricing process in 2012

No Group of process Number of enterprises

applying

Ratio of enterprises applying (%)

Source: Statistics from the survey and investigation results of the thesis

4.2.3.1 Actual state of investment, construction and trading house enterprises applying group of process 1

The variation of prices of newly-built commercial house at different time of pricing in comparison with the average transaction prices on the market is illustrated through the following table:

Table 4.4: Prices set in process 1 at different times of investment, construction and

trading house enterprises in a number of projects

No Name of project

Price at the time of record (million dong/m 2 )

Price at the time allowed selling (million dong/m 2 )

Selling price at the time finishing project (million dong/m 2 )

1 Apartment M3-4 – Nguyen Chi Thanh

Phu district

5 TWIN tower apartment –

6 Vuon Xuan apartment –

Source: the survey and investigation results of the thesis 4.2.3.2 Actual state of construction investment and trading house enterprise application

processes in groups 2

The variation of prices of newly-built commercial house at different time of pricing in

comparison with the average transaction prices on the market is illustrated through the

following table:

Table 4.5: Prices set in process 2 at different times of investment, construction and

trading house enterprises in a number of projects

No Name of project

Price at the time of record (million dong/m 2 )

Price at the time allowed selling (million dong/m 2 )

Selling price at the time finishing project (million dong/m 2 )

1 Le Van Luong apartment –

Hacinco

2 Apartment N07 B1Dich

Vong urban area

3 Era apartment – Tan Binh

district

4 Hoang Anh GL apartment –

Da Nang

5 Apartment CT2 Ngo Thi

Nham – HD

6 Apartment N4 A – B Le

Van Luong

Source: the survey and investigation results of the thesis 4.2.3.3 Actual state of construction investment and trading house enterprise application

processes in groups 3

The variation of prices of newly-built commercial house at different time of pricing in

comparison with the average transaction prices on the market is illustrated through the

following table:

Table 4.6: Prices set in process 3 at different times of investment, construction and

trading house enterprises in a number of projects

No Name of project

Price at the time of record (million dong/m 2 )

Price at the time allowed selling (million dong/m 2 )

Selling price at the time finishing project (million dong/m 2 )

1 Hoa Phat apartment – Giai Phong road

2 Apartment 17 CT – Vinaconex 22.5 29.5 31.0

3 Vimeco apartment – Hoang Minh Giam

4 Petro Landmark apartment – District 2

Source: the survey and investigation results of the thesis

4.2.4 Current status of target and pricing methods of commercial housing at investment, construction and trading house enterprises

4.2.4.1 Current status of target price of commercial housing at investment, construction and trading house enterprises

In fact research shows that target enterprise valuation of differences in each enterprise and it may change at different times depending on the actual conditions of trading enterprises

4.2.4.2 Current status of pricing methods of newly- build commercial housing at investment, construction and trading house enterprises

From practical research activities in the construction investment and trading house enterprise show that, most enterprise are using the cost method to calculate price, Besides, there are a number of enterprises using the formula for determining the price in accordance with Circular 15/2009/TT-BXD issued by the Ministry of Construction on 30 June 2009

Actual expense method to calculate price for newly- build commercial housing at investment, construction and trading house enterprises

Selling price of commercial housing is defined by the formula:

Selling price = Overall cost price + Expected profit + VAT Pricing method for newly-built commercial house applied by investment, construction and trading house enterprises can be described generally in a specific project as:

A/ Information of the project:

- Name of the project : Betexco II Apartment

- Area of the land : 5,930 m2

- Total area for building : 5,367 m2

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- Number of story : 30-story

- Total area of floorage : 88,038 m2

- Total number of flats : 400 flats

The building is designed and built with 30 stories and 02 basements The service zone

is from the 1st floor to the 5th floor with floorage area on each floor of 3,512m2 The area

from the 6th floor to the 30th floor is divided into 02 sections The floorage area of each

section of 1,200 m2 is used for living (apartment block) Each floor of the section is allocated

08 independent self-contained flats (including sitting room, dining room, kitchen, bed

rooms, bathrooms, logia) which are designed under 02 typical design patterns with the area

of 131 m2 and 120 m2

B/ Determining the total cost of the project:

• Assumed conditions to calculate the total cost of the project:

- The unit price to calculate the total investment for the project is taken in accordance

with the works of the same scale, characteristics which have been built This unit

price does not include VAT

- The land amount of the investment project to build the apartment is calculated in

accordance with Decision No 4352/QD-UBND of Ha Noi city dated 16 September

2011; accordingly, the value of land use right is equivalent to VND 29,146,000/m2

and the land rental VND 8,400,000/ m2

- The interest rate for bank loan is 19%/year

- Corporate income tax is 25% on taxable profits, VAT 10% on total net revenue

- There is no abnormal change in the socio-economic conditions that affect the project

such as earthquake, war, etc

• Calculating total investment:

+ Costs of construction and equipment

+ Other costs, costs of project management and other consultancy costs

• Total investment of the project:

Table 4.8: Total investment cost of BetexcoII Project

1 Construction cost Appendix Table 1 638,803,728,000

2 Equipment cost Appendix Table 1 59,865,840,000

4 Project management cost,

construction investment

consultancy cost, and other costs

10% x (CPXL+CPTB) 69,866,956,800

5 Interest for loans during

construction

6 Provision fees 19.422% x (CPXL+CPTB+4) 149,265,163,847

Source: Betexco Investment and Construction company

14

C/ Determining the selling price of flats and commercial zone:

- Allocation of cost: Table 4.8 indicates that the apartment with an area of 120m2, 131

m2 apartment and the commercial zone is allocated with the total investment of VND 399.7 billion, VND 436.4 billion and VND 217.7 billion, respectively

- Determining the unit price on each m2 for each area subject to cost allocation: For the 120m2 flats with the total area of 24,000m2, the pre-tax unit price on each m2 is VND 16.657 million and the after-tax unit price is VND 18.33 million; similarly for the 131m2 flats with the total area of 26,200m2, the pre-tax unit price on each m2 is VND 16.657 million and the after-tax unit price is VND 18.33 million; for the service zone with the total area of 13,071m2, the pre-tax unit price on each m2 is VND 16.657 million and after-tax unit price is VND 18.33 million

- Determining the selling price of flats and commercial zone on the market: In this project, the enterprise chooses three levels of interest rates to calculate the selling price which are 10%, 14% and 19% With such interest rates, the selling prices of correlative flats are VND 18,400,000/m2, VND 19,083,000/ m2 and VND 19,920,000/ m2

Based on the above factors, the enterprise has decided the average selling prices of the flats and the commercial zone with details as:

+ Commercial zone: average selling price for 1 m2 is VND 23,000,000/ m2; + Flats: average selling price for 1 m2 is VND 20,500,000/ m2;

The actual state of application of the method in accordance with guidance in

Circular No 15/2009/TT-BXD issued by Ministry of Construction on 30 June 2009 to calculate the price of newly-built commercial house at the investment and trading enterprises

Specifically, the pricing method for commercial house is used by enterprises as follows:

• Pricing method for commercial house:

- In case: Sell house by down payment Formula to determine:

Td + L + Bt

Gb =

S x K (4.2.1)

In which:

Gb: Selling price of 1m2 of flat use (Dong/ m2);

Td: Total construction investment cost of the project;

L: Profit of the project (Dong);

Bt: Works maintenance cost for the mutual property (Dong);

S: Total area used of the flats of the project;

K: Floor coefficient on the principle of capital preservation as illustrated in this example: A 5-story apartment can be allocated as: K1=1.2; K2=1.1; K3=1.0; K4=0.9; K5=0.8

- In case: Sell house by installment payment

Applicable on the commercial house, the ratio of first payment can change subject to

agreement between the buyer and the project investor The term of installment payment can

also change flexibly in accordance with the financial condition of the buyer

• Method of determining rental of commercial house

Formula to determine:

Vd + L + Ql + Bt -

Tdv

Gt =

12 x S

x K (4.2.2)

In which:

Gt: Rental of 1m2 of flat use in 1 month (Dong/ m2/month);

Vd: Construction investment cost of the project allocated annually on the principle of

capital preservation (Dong/ year);

Formula to determine Vd:

Td x r(1+r)n

Vd =

(1+r)n-1 (4.2.3)

Td: Total construction investment cost of the project;

r: Interest rate of invested capital preservation (% year);

n: The number of years to collect capital depending on specific conditions of each

project, minimum 20 years;

L: Profit of the project (Dong/ year);

Ql: Annual operation cost (Dong/ year);

Bt: Works maintenance cost per year (Dong/ year);

Tdv: Revenues from operating services in the apartment in the year such as vehicle

keeping service, canteen service, revenues (if any) from sports events (Dong/ year);

S: Total area for use of the project’s flats for rent (m2);

K: Floor coefficient

Rental price is determined by the formula (4.2.4) and the rental price shall be lower

than that in formula (4.2.2)

Vd + Ql + Bt - Tdv

Gt =

12 x S x K (4.2.4) Method of determining price of renting and buying house

Formula to determine:

A x (Vd + L) x K + Ql + Bt - Tdv

Gtm =

12 x S x K (4.2.5)

In which:

Gtm: Price of renting and buying 1m2 of flat use by month (Dong/m2/month);

A: Coefficient illustrating the ratio between the remaining value of the flat (after

subtracting the first payment) and the initial value of the flat (A<1);

Vd: Construction investment cost of the project allocated annually on the principle of capital preservation (Dong/ year);

L: Profit of the project allocated by year (Dong/ year);

The pricing for newly-built commercial house applied under this method can be generally described in the following example:

Information of the project:

- Name of the project : An Hoi 3 Apartment Project, Pham Van Chieu street, ward 14, Go Vap district, Ho Chi Minh city

- Investor : Sai Gon Real Estate Corporation Data of the project is provided as follows:

- Total investment cost of the project: Td= 268,170,207 (thousand dong)

- Investment cost allocated annually with n=20, i=14%, Vd= 40,490,000 (thousand dong/ year)

- Annual operation management cost is temporarily calculated at VND 350,000/ flat which is the popular amount for low-cost to average-cost apartments Therefore, with the total number of flats of the projects of 288, the operation management cost of the building after going into use shall be Ql= 100,800 (thousand dong/ year)

- Works maintenance cost per year: Bt=2%Vd=809,800 (thousand dong/ year)

- Coefficient K: For this project, the investor calculates K=1, and target Tdv=0

- Total area of floorage of flat use S=21,174m2 Determining the selling price of the flats

- Applying formula 4.2.1, with the investor’s profit of 14%, this project will have the pre-tax average selling price of the flats of VND 14.5 million/m2, selling price including VAT of VND 16 million/m2 Therefore, the selling price of the smallest 50m2 flat of this project will be around VND 800 million

- If the above flat is bought by installment payment with the first assumed payment of 20% the value and the remaining 80% supported by the bank shall be paid in 20 years at an interest rate of 14%/ year, the monthly payable amount by equal installment payment method will be VND 7,958,000/ month which does not include yearly operation management cost

Determining the rental price of the flat:

- Rental price of 1m2 of the flat per month, applying formula 4.2.4 is determined at 163 thousand dong/m2/month, the rental price of a 50m2 flat will be VND 8,147,000/ month (this price assures that the investor can achieve the profitability of 14%/ year)

- If the same flat is rented or bought with the first payment amount of 20% the value, the remaining 80% is paid in assumably 10 years Other values are similar to the above calculation, while the 14% profit of the investor on the total cost of the project will be allocated annually together with the total cost The price of renting and buying determined

by formula (4.2.5) is 188 thousand dong/ m2/month

Monthly payment for a 50m2 flat is VND 9,400,000 If the payment term extends by

20 years, the monthly payment shall decrease to VND 7,446,000/ month

17

Comment on the actual state of the pricing method applied by the investment,

construction and trading house enterprises

From the factual research of this content, the following comments can be indicated

from the thesis:

- Basically, the pricing methods applied by enterprises to price newly-built commercial

house are accepted by the market and the price can also satisfy enterprises’ minimum target

under the angle of profit

- Variances between the prices fixed by enterprises and the successfully transacted

prices on the markets are still big

- The investment, construction and trading house enterprises which have rented the

independent pricing organizations have proposed the prices close to the prices transacted on

the market

- The application of comparative method is performed in an emotional manner rather

than on the basis of scientific basis and evidence to adjust the prices

4.2.4.3 Actual state of price adjustment and price change of newly-built commercial house

at investment, construction and trading house enterprises

• Price adjustment

Enterprises often adjust the prices on the following coefficients:

- Coefficient of house location

- Coefficient of flat floor

- Coefficient of house direction

After determining the coefficients of house location, floor and direction, the enterprises then

determine the selling price by the following formula:

Selling price = standard price (1+coefficient of house location) X (1+coefficient of floor)

X (1 x coefficient of house direction)

• Price change

Because the enterprises implement and publish the pricing of newly-built commercial house

to the market at the time of starting construction, while the duration of construction and

handing over houses to customers is rather long (average 24 months), therefore during this

period, a number of fluctuations on the market shall require the enterprises to increase or

decrease the price accordingly

4.3 Evaluation of the actual state of newly-built commercial house pricing at the

investment, construction and trading house enterprises

4.3.1 Results obtained

On pricing basis: Basically based on scientific basis

On pricing procedures: Ensuring the basic principles in the pricing procedure for

products in general and for real estate products in particular

- In the pricing process, the investors collected information, analyzed, compared and

evaluated the prices of similar projects;

- The use of cost method ensures that the investors can compensate for the total cost

invested and the target profit amount prior calculated

18

4.3.2 Restrictions and causes

• Restrictions in pricing house at the investment, construction and trading house enterprises

Firstly: Although the pricing goal has been introduced in the pricing process, the goals

chosen by the investors are ambiguous from time to time, as well as stiff and lack of adjustment based on the actual situation on the market

Secondly: The pricing method currently applied by the investment, construction and

trading house enterprises is too qualitative, dependent much on the factor of experience; therefore the newly established enterprises or those enterprises having few investment projects will encounter a lot of difficulties in organizing pricing while ensuring their goals and getting accepted by the market

Thirdly: The database serving the pricing of the majority of the investment, construction

and trading house enterprises is still poor

Fourthly: The model of pricing organization at the investment, construction and trading

house enterprises is not shaped clearly and lack of professionalism

Fifthly: The investment, construction and trading house enterprises have not applied a

complete pricing organization process

Sixthly: The staff working on pricing is of poor quality and lack of professionalism Seventhly: The determination of the market’s demand on the project’ house does not

receive the adequate appreciation and attention to its role in the pricing process

• Causes of restrictions

Firstly: The viewpoint of the leaders of investment, construction and trading house enterprises show much discrepancy with the development tendency of the present real estate market in general and the housing market in particular

Secondly: Facility, human and facilitation for pricing at the investment, construction and trading house enterprises are not invested adequately and unsatisfying the increasing requirement to meet the demand

Thirdly: Training and fostering the staff working on pricing at the investment, construction and trading house enterprises is not implemented in a methodical and scientific way

Fourthly: The information of the newly-built commercial house market in particular and the real estate market in general is lack of transparency

Fifthly: The domestic real estate market shows lack of a database which is large and liable enough for enterprises to exploit and serve the pricing of newly-built commercial house Sixthly: To win a project of commercial house investment and construction for sale or for lease, enterprises have to pay for the negative surcharges which cannot be accounted for

in the enterprises’ expenses

Seventhly: The habit of making secret transaction has rooted in the thinking of people and enterprises

Eighthly: The state management agencies have not successfully built economic sanctions

as well as regulations guiding in detail the pricing of newly-built commercial house at investment, construction and trading house enterprises to act as a basis for enterprises to implement methodically and scientifically

CHAPTER 5 SOLUTIONS TO COMPLETE THE PRICING OF NEWLY-BUILT

COMMERICIAL HOUSE AT INVESTMENT, CONSTRUCTION AND TRADING

HOUSE ENTERPRISES 5.1 Determining viewpoint of newly-built commercial house pricing at investment,

construction and trading house enterprises

Viewpoint 1: The pricing of newly-built commercial house should ensure the

reasonable connection between the value and value in use of the house

Viewpoint 2: The pricing of newly-built commercial house should reflect the

relationship between supply and demand and the market price

Viewpoint 3: The pricing of newly-built commercial house should ensure the

harmonization between the profit of enterprises – customers and the state

5.2 Solutions to complete the pricing at investment, construction and trading house

enterprises

5.2.1 Application of Hedonic pricing model for building a regression function of pricing

of newly-built commercial house

5.2.1.1 Reason of selecting the model

The application of the model helps to identify which factors are highly appreciated or

not highly appreciated by the majority of customers This model not only mentions the basic

factors of houses but also measures other factors such as educational level of citizens, living

space, and environmental pollution level in the areas that need pricing

5.2.1.2 Steps

Step 1: Collect results of field investigation or analyze stored data to identify

variables

Step 2: Identify correlation coefficient between dependent variables and each

independent variable (Pearson – r correlation coefficient)

Step 3: Identify the order of independent variables according to criteria of Pearson

correlation coefficient with dependent variables going downward

Step 4: Take each variable into regression analysis, the variable with high r will be

taken first This process will end if the regression model does not accept the variable and the

accepted variables are selected variables

5.2.1.3 Building regression model of newly-built commercial house pricing through case

study of a commercial apartment in Ho Chi Minh city

From the identified variables and built questionnaire, the thesis has investigated 300

flats in more than 10 different commercial apartment projects within Ha Noi city The

investigation and supervision projects are implemented with different location and quality of

flats The application of regression function in accordance with Hedonic pricing model is

expanded to suit the variables and research data of the thesis

• Building linear regression function reflecting the factors that affect the price of

newly-built commercial apartment

The Ordinary Least Squares used with the dependent variable of GIA (price of the

flat) and independent variables produces the following results

Table 5.2: Results of multivariate regression analysis by stepwise method

Unstandardized coefficient

Standardized coefficient

Multicolinearity test Variable

B Standard deviation Beta

t Sig

Toleranc

KC_TT -0.814 0.091 -0.377 -8.973 0.000 0.198 5.045 COST 0.712 0.110 0.285 6.487 0.000 0.181 5.511 KC_MS -0.556 0.243 -0.096 -2.284 0.023 0.197 5.085 SECURITY 1.563 0.357 0.165 4.379 0.000 0.246 4.065 ENVIRONMENT 0,889 0.326 0.100 2.727 0.007 0.262 3.822 Results in Table 5.2 show that all of the 05 variables selected by stepwise method are meaningful when their Sig values are smaller than 0.05 Specifically, the variables KC_TT; PRICE; COST; ENVIRONMENT have the reliability of 99%, while the reliability of variable KC_MS is 95% This proves that apartment’s prices are affected by 5 factors, namely Distance from the apartment to the city center; Cost of apartment; Distance from the apartment to Shopping mall; Security position of the apartment area; Ecological environment The regression function built has the following pattern:

PRICE = 19.855 – 0.814 * KC_TT + 0.712 * COST – 0.556 * KC_MS + 1.563 *

SECURITY + 0.889 * ENVIRONMENT

• Using regression model for pricing specific apartment project

From the results of analysis and the built regression function, the author prices a specific apartment project to determine the price, then compares the determined prices by the regression model at the price published by the investor and the average prices successfully transacted on the market of the project Specific information of the project is as follows:

- Name of the apartment: Bitexco II building

- Selling price of flat published by the investor: VND 23.5 million/m2

- Average price successfully transacted on the market: VND 28 million/m2

- Information of variables under the built model: Distance from the apartment to the city center is 15km; Cost of the apartment is VND 16 million/m2; Distance from the apartment to the shopping mall is 2km; Security position in the apartment area is ranked at level 4 (Good) and Ecological environment of the apartment area is ranked at 3 level (Average) Replacing the information of the variables into the regression model, we have: PRICE = 19.855 - 0.814*15 + 0.712*16 - 0.556*2 + 0.563*4 + 0.889*3 = VND 26.8 million/m2

As it can be seen, the price determined by the regression function is VND 26.8 million/m2 which is very close to the average price successfully transacted on the market (VND 28 million/m2) and has the difference of VND 3.5 million/m2 with the price published by the investor Therefore, if the investors apply the built regression model to price, the prices published by them will still be accepted by the market while increase a profit amount of VND 3.5 million/m2 for each m2 of the flat sold

5.2.1.4 Conclusion