# RECORD 0a4917c7f444817b4974629ac2f7d58ef2f99321 # TITLE: The Hedonic Method in Evaluating Apartment Price: A Case of Ho Chi Minh City, Vietnam # YEAR: 2020.0 VENUE: nan DOI: 10.13106/jafeb.2020.vol7.no6.517 # AUTHORS: H. Nguyen; H. Phan; T. Van Tran; Thang Kiem Viet Tran # PAGES: 8 CANDIDATE TABLE PAGES (1-based): [6] # ABSTRACT: The study examines factors affecting apartment prices in the real estate market of Ho Chi Minh City, Vietnam. The study uses primary data based on surveys of customers who have traded successfully, and collects transaction data from real estate trading companies that are the top investors in Ho Chi Minh City real estate market. The collected data include 384 observations in a total of 24 districts, detailing that each district surveyed on a minimum of four projects, each project carried out a survey on a minimum of four apartments. The survey collected 339 valid questionnaires for analysis and model testing. This study employs multivariate regression with the data of 339 observations. The research results reveal that five significant factors affect positively the price of apartments in Ho Chi Minh City – apartment area, toilet and bedroom, apartment floor, reference price, and apartment interior. Besides, there are three significant factors affecting negatively the price of apartments – next price trend, distance to city center, and potential building. From the results, the research proposes solutions in the pricing of apartments in the real estate market in Ho Chi Minh City – better information system, a real estate transaction index, and stricter management of small brokerage activities. ===== PAGE 1 (score 19, numeric-paren 0, table-words 3, var-words 13) ===== Ha Minh NGUYEN, Hung Quoc PHAN, Tri Van TRAN, Thang Kiem Viet TRAN / Journal of Asian Finance, Economics and Business Vol 7 No 6 (2020) 517 – 524 517 517 Print ISSN: 2288-4637 / Online ISSN 2288-4645 doi:10.13106/jafeb.2020.vol7.no6.517 1First Author and Corresponding Author. Associate Professor, President, Ho Chi Minh City Open University, Vietnam [Postal Address: 97 Vo Van Tan Street, Ward 6, District 3, Ho Chi Minh City, 700000, Vietnam] Email: ha.nm@ou.edu.vn 2Heineken Vietnam Brewery Limited Company, Vietnam. Email: phanquoc.hung@heineken.com 3Ho Chi Minh Youth Union, Ho Chi Minh City Open University, Vietnam. Email: tri.tv@ou.edu.vn 4Lecturer, Faculty of Business Administration, Ho Chi Minh City Open University, Vietnam. Email: thang.tkv@ou.edu.vn © Copyright: The Author(s) This is an Open Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (http://Creativecommons.org/licenses/by-nc/4.0/) which permits unrestricted noncommercial use, distribution, and reproduction in any medium, provided the original work is properly cited. The Hedonic Method in Evaluating Apartment Price: A Case of Ho Chi Minh City, Vietnam Ha Minh NGUYEN1, Hung Quoc PHAN2, Tri Van TRAN3, Thang Kiem Viet TRAN4 Received: March 07, 2020  Revised: April 04, 2020  Accepted: May 01, 2020 Abstract The study examines factors affecting apartment prices in the real estate market of Ho Chi Minh City, Vietnam. The study uses primary data based on surveys of customers who have traded successfully, and collects transaction data from real estate trading companies that are the top investors in Ho Chi Minh City real estate market. The collected data include 384 observations in a total of 24 districts, detailing that each district surveyed on a minimum of four projects, each project carried out a survey on a minimum of four apartments. The survey collected 339 valid questionnaires for analysis and model testing. This study employs multivariate regression with the data of 339 observations. The research results reveal that five significant factors affect positively the price of apartments in Ho Chi Minh City – apartment area, toilet and bedroom, apartment floor, reference price, and apartment interior. Besides, there are three significant factors affecting negatively the price of apartments – next price trend, distance to city center, and potential building. From the results, the research proposes solutions in the pricing of apartments in the real estate market in Ho Chi Minh City – better information system, a real estate transaction index, and stricter management of small brokerage activities. Keywords : Hedonic Method, Price, Apartments, Real Estate, Vietnam JEL Classification Code: D04, D12, D40, D90 1. Introduction Ho Chi Minh City is the most densely populated city in Vietnam, and is also an important economic cultural and educational hub of the nation. Located in the transition zone between the Southeast and Southwest of Vietnam, Ho Chi Minh City today consists of 19 inner districts and five suburban districts, with a total area of ​2,095.06 km². According to the 2014 census of the Bureau of Population Statistics, the city population had reached 7,955,000. However, if taking unregistered residents into account, the actual population of the city exceeds 10 million. Thanks to favorable natural conditions, Ho Chi Minh City now becomes an important transportation hub of Vietnam and the Southeast Asia, including roads, railways, waterways and airways. Ho Chi Minh City also plays the most crucial roles in the fields of education, media, sports and entertainment. But Ho Chi Minh City is facing the problems any large city with high population growth rate has to deal with, which is housing demands for its residents in the city. However, the key challenge here, when real estate markets such as houses, apartments, rooms for rent, hotels, etc. can still provide for residents or tourists wishing to buy or rent, is that the investors or owners of these properties keep increasing their selling or renting rates excessively, following no rules at all. This causes great difficulties for those who really need to buy or rent houses and apartments, and intend to settle down permanently in Ho Chi Minh City. Besides, there were some scientific studies such as one by Cebula (2009), with 591 observations in Historic Landmark district during 2001-2005, assessing the impact of 24 independent variables on housing prices. Another research by Eda (2003) in Ankara, using cross data of 244 ===== PAGE 6 (score 21, numeric-paren 13, table-words 1, var-words 6) ===== Ha Minh NGUYEN, Hung Quoc PHAN, Tri Van TRAN, Thang Kiem Viet TRAN / Journal of Asian Finance, Economics and Business Vol 7 No 6 (2020) 517 – 524 522 Table 4: Results of OLS regression analysis A Model 1 Model 2 B Significance B Significance Constant -0.189 0.267 -0.157 0.297 DIS -0.059*** 0.000 -0.065*** 0.000 FLO 0.047*** 0.000 0.031*** 0.000 TIME-USED 0.012 0.311 0.015 0.162 RE-PRICE 0.565*** 0.000 0.464*** 0.000 FUR 0.324*** 0.000 0.324*** 0.000 VIEW 0.056 0.397 0.045 0.443 IN-ENVI -0.011 0.875 -0.020 0.759 INVEST 0.009 0.899 0.027 0.666 LEG 0.009 0.897 -0.071 0.281 ULSTRUCTURE -0.145** 0.044 -0.167*** 0.009 TREND -0.083 0.133 -0.091* 0.065 WCBR 0.379*** 0.000 SQUA 0.016*** 0.000 Significance (Sig.) .000 .000 R .910a .929a R Square .829 .863 Adjusted R Square .823 .858 4.3.1.  Variable “ULSTRUCTURE” (potential works): Model 1 has a statistical significance of 5% and Model 2 is 1%, acting inversely to the initial expectation of the study. According to Ratchatakulpat et al. (2009), the larger the construction with supermarkets and surrounding infrastructure, the higher the total value of the apartment. However, this result reflects the true nature of the apartment market in Ho Chi Minh City when the owner of the apartment surveyed did not appreciate the presence of grand structures and construction in the future. The problems concerned buyers have: the status of legal documents, time of project completion, the size of the project leading to delay in compensation, etc.; all these make this factor not highly appreciated. 4.3.2.  Variable “DIS” (distance from one project to the center): Both models have a statistical significance of 1%, in line with the initial expectations. Even the study by Luc (2014) shows the same expected results. Among all the expectations of investors, speculators, or buyers in general, the distance from the project to the city center plays a key role in their purchase decision. Projects located near the center always attract buyers due to the convenience to commune, study, work, etc. 4.3.3.  Variable “FLO” (number of floors of apartments): Both models have a statistical significance of 1%, in line with the initial expectations. According to Rosen (1974), apartment floors tend to be proportional to the total value of real estate in the same project. In fact, when buying a house or a land plot, buyers do not care about this factor, but when they are involved in an apartment project, their interest in the higher floor will be taken into account. Basically, the higher the apartment is located, the greater its total value compared to the apartment in the same area and with the same view on a lower floor. One of the reasons is due to access to fresher air, better health, and more beautiful apartment view. 4.3.4.  Variable “RE-PRICE” (reference price): Both models have a statistical significance level of 1%, as initially expected. Nguyen et al. (2012) studied the issue of house renting price in Can Tho city. This clearly shows that the reference price before deciding to buy or sell apartments has a certain impact on the total value. If the initial reference ===== PAGE 7 (score 17, numeric-paren 0, table-words 2, var-words 13) ===== Ha Minh NGUYEN, Hung Quoc PHAN, Tri Van TRAN, Thang Kiem Viet TRAN / Journal of Asian Finance, Economics and Business Vol 7 No 6 (2020) 517 – 524 523 price of the apartment is high compared to others in the same segment, time and quality, then when making the next transaction, the apartment price will be calculated from the reference price onwards. 4.3.5.  Variable “FUR” (apartment interiors): Both models have a statistical significance of 1%, consistent with expectations and also with the research by Ratchatakulpat et al (2009). High-end projects, with large investment in luxurious branded interiors used in Grade A buildings, are always priced higher than projects in the mainstream segment with budget furnitures, purely invested for the purpose of accommodation. However, currently in Ho Chi Minh City, apartment price depends on many factors, and the interior of the apartment is only one of the factors that have a relative impact. 4.3.6.  Variable “WCBR” (number of toilets and bedrooms): Model 1 has a statistical significance of 1%, in line with the initial expectations of the study. The more toilets and bedrooms the apartment has, the higher the price of that apartment in the same project (applicable to all segments from mainstream to high-end) according to Melichar et al. (2009) and Baek et al. (2019). This is one of the essential factors or one of the criteria when choosing an apartment, along with other elements like kitchen, balcony, and laundry. The number of toilets and bedrooms plays an extremely important role: the more toilets and bedrooms, the higher the price of apartments. 4.3.7.  Variable “SQUA” (apartment area): Model 2 has a statistical significance of 1%, in line with the initial expectation. According to Hoang (2009), the larger an apartment is, the higher its price. This is completely true of the apartment market in Ho Chi Minh City. The apartments that have extra area for balcony, drying area, laundry or spacious walkways, will definitely make the apartment feel more comfortable and airy than those with small areas with fewer amenities. 4.3.8.  Variable “TREND” (next price trend): For Model 2, this variable has a statistical significance of 10%, in contrast to the initial expectation of the research and survey by Luc (2009). This is a big difference between the two models when conducting the analysis. This is consistent with the study by Celbula (2009) in that if the trend of predicting the next price of an apartment increases, then the price of apartments will increase. The reason for the change that is contrary to the initial expectation, in the results of the survey and statistics, is that the number of respondents predicting the rise, a plateau or a fall is almost the same with the average value of 0.52; 50% of the respondents said the price will rise and 50% of the respondents said it will not. Respondents, who also carried out transactions in the secondary apartment project, did not have an accurate answer to the next trend for apartment prices in all segments, either mainstream or high-end at the time of the survey. The following variables are not statistically significant in the model: “TIME-USED”, apartment time used; “VIEW”, view from the apartment; “IN-ENVI”, utilities provided by apartment projects; “INVEST”, reputation of the investor; “LEG”, the legal value of the apartment. Regression results are expressed in Table 4 as follow: 5.  Conclusion and Policy Recommendations 5.1.  Conclusion The study examines the factors affecting apartment prices in Ho Chi Minh City, Viet Nam. The main method used was the Hedonic method, followed by multivariate regression, with data from 339 observations in Ho Chi Minh City. The research found five significant factors affecting positively the price of apartments in the Ho Chi Minh city real estate market: apartment area (+), toilet and bedroom (+), apartment floor (+), reference price (+), and apartment interior (+). Besides, there are three significant factors affecting negatively the price of apartments: price trend next (-), distance to city center (-), and potential building (-). Finally, the five remaining factors have no effect at all. 5.2.  Policy Recommendations From the above results, the research proposes the following policies: Completing the information system: Real estate transactions on the market today are aggregated and statistically analyzed at the trading floors, statistics from the investors, relevant ministries and agencies, etc. However, the key and important sets of information such as the exact transaction price of previous purchases, news of infrastructure planning, even the issues of compensation, are important aspects related to the transaction which cannot be accessed via any formal approaches. Therefore, the formulation of an information system covering all information relevant to the project and planning will help buyers a great deal when deciding to enter the transaction. Building a real estate transaction index: Like the stock market, the real estate market needs a specific and practical parameter to assess the impact of the market daily, weekly, monthly and annually. Thereby, the buyer will have a more