Management accounting in pricing decisions for real estate of real estate firms in Vietnam

 At present, there are no or less effective procedures for making real estate pricing 
decisions as well as information systems and databases used for making real estate pricing 
decisions in most REEs. According to the surveys, pricing decisions for real estate of firms 
have not been really suitable with market conditions, most of the prices are different from 
those of successful transactions in the real estate market. 
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Table 1: Statistics on the selling prices for real estate of some projects in Hanoi 
No. Project name 
Average price decided 
by firm when the 
project is allowed to 
raise capital 
(Mil VND/m²) 
The rate of 
apartments sold 
when the project 
is allowed to raise 
capital (%) 
Actual average 
transactions prices in 
the real estate market 
(Mil VND/m²) 
1 
Rainbow Apartment Building in Van 
Quan ward 26 92 
28 
2 
Euroland Apartment Building in Mo 
Lao ward, Ha Dong district 24 94 
27 
3 
Apartment Building at Hoang Van 
Thai street 17.5 94 
25 
4 
M3-M4 Apartment Building at 
Nguyen Chi Thanh street 32.5 95 
40 
5 Geleximco Apartment Building 16.6 88 14 
6 Vincom Ba Trieu Apartment Building 72.5 66 
85 
7 The Manor Apartment Building 35.5 45 45 
8 Keangnam Apartment Building 41.5 86 45 
9 
17CT – Vinaconex Apartment 
Building 29.5 78 
27 
10 Vimeco Apartment Building 29 89 33 
11 
Apartment Building at No. 143 Doc 
Ngu street 
35.5 
67 
37 
(Source: Financial Department of Hoa Phat Group) 
 This indicates the needs for an effective information system and procedures for 
making pricing decisions to deliver the best economic performance for the firms and suit the 
real estate market conditions. 
5. Solutions for improving the information system and procedures for making real estate 
pricing decisions in Real Estate Firms 
For the purpose of improving the information system and procedures for making real 
estate pricing decisions in REEs, which help firms overcome the shortcomings in making 
pricing decisions for real estate, the author proposed as follows: 
First: REEs should establish a team of experts to help managers make estimates for 
real estate business budgets and take responsibility for budgeting and directly helping 
managers make decisions on real estate business. This team can directly take personnel from 
related departments such as planning, organization, accounting, project management, 
construction teams, etc. 
Second: The procedures for making pricing decisions should be as follows: 
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Diagram 1: Procedures for making real estate pricing decisions in REEs 
(1) Pricing decisions at the time of real estate project evaluation and construction 
Surveys showed that most of the REEs have not really seen the important role of 
pricing decisions at this time of the project. It can be said that the pricing decisions in this 
period are usually made to make the project highly feasible to achieve the different objectives 
of the enterprise. If the real estate market is busy, where demands are higher than supply, then 
this does not affect REEs much. But when the downturn occurs, if the firms make inaccurate 
and unreasonable pricing decisions for real estate, it shall greatly affect the establishment of 
cost estimation system for project efficiency analysis, which results in the provision of wrong 
information to the making of management decisions. With the important role of pricing 
decisions for real estate in this period, the author would like to propose the steps for making 
real estate pricing decisions in this period as follows: 
Step 1: Making pricing decisions for real estate by expert team 
In this step, the expert team should use the cost method, the comparative method, and 
the income method for making pricing decisions. The established cost estimate reporting 
system for real estate projects shall be used as guiding information for the initial pricing 
decisions. In addition, the expert team should prepare additional analysis reports for making 
decisions such as: 
+ The reports which analyze the socio-economic development strategies of the 
regions, localities and industries, the transport planning that affects the real estate sector and 
directly affects the real estate projects. 
+ The reports which analyze housing market (adjoining buildings, villas), apartment 
buildings market. In these reports, the enterprise must show the estimated average price and 
the price successfully transacted on the market. 
+ Reports on additional expenses incurred due to inflation of construction cost. This 
report should be made by enterprise based on the calculation of the average inflation 
coefficient over the last 3 to 5 years. 
From there, the expert team shall have a scientific basis for making real estate pricing 
Pricing upon project 
evaluation and construction 
Independent pricing 
appraisal 
Make pricing decisions 
Pricing upon capital raise is 
allowed 
Independent pricing 
appraisal 
Make pricing decisions 
Pricing upon real estate 
project completed 
Independent pricing 
appraisal 
Make pricing decisions 
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decisions and prepare reports on estimates of revenue, profit and loss and reports on the 
effectiveness of the project. 
Step 2: Independent appraisal firm 
Depending on the conditions of each enterprise, the independent appraisal of the price 
made by the expert team can be done by the enterprise on their own or by another independent 
appraisal firm. Then, based on the results of the independent appraisal, the expert team and 
the independent appraisal firm shall produce a report analyzing the pricing results, the 
increase and decrease and the causes for that and submit to the management board to make 
the final pricing decision. 
Step 3: Making pricing decisions 
In this step, the management board of the enterprise shall base on the pricing results 
analysis report of the two appraisal organizations to make the final pricing decision. This is the 
decision that shall influence the calculation of the project efficiency, product identification of 
the real estate project and customer group of the real estate project. 
(2) Pricing decisions at the time when capital raise is allowed 
This can be considered as the most important pricing time of a real estate project, or in 
other words, a pricing decision at this time is one of the most important management 
decisions of the REEs. This pricing decision will directly response to the market acceptance 
of the project’s products and will be almost critical to the success of the real estate project. 
Step 1: Making pricing decisions for real estate by expert team 
The basis for pricing decisions at this time is the pricing decisions made when the 
enterprise evaluated and developed the real estate project. However, due to the different times 
of making pricing decisions, the expert team should re-execute the analytical reports which 
have been made for the pricing process to obtain accurate information up to the present time. 
In addition, the price which was determined by the enterprise or an independent appraisal firm 
at the time of the project evaluation and development is the average price per square meter for 
real estate projects, such as the average prices per square meter for apartments, villas, and 
adjoining buildings. In fact, the cost prices per square meter of built real estate is the same, 
but due to the tastes for real estate of customers, due to the differences of real estate, such as 
the different directions of two apartments on the same floor, the customer’s decisions to buy 
are affected. Therefore, in order to meet the market conditions and the needs of customers, in 
this period REEs need to make detailed pricing decisions for real estate of each apartment, 
villa or adjoining building on the basis of adjusting the average price. 
Making detailed real estate pricing decisions for each property in the project is a 
complex task, which reflects the sensitivity of the pricing team with the real estate market, 
directly affecting the sales of the real estate firms. Firms can apply price adjustment method 
by coefficient. For example, the method of adjusting prices for apartments is as follows: 
 Identify factors that affect the real estate prices such as: location of the building, 
floor, apartment direction, usable area, private car park, etc. 
 Identify the adjustment coefficient for each affecting factor 
In this step, the REEs have to choose the coefficients for the factors affecting real 
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estate prices based on actual experience and business sensitivity. Normally, for each factor the 
most typical type is selected and coefficient of 1 is taken, the other types shall be adjusted by 
the coefficient in increasing or decreasing orders. 
For example, in the real estate project there are 3 buildings, the building which has the 
best and most convenient location shall have the highest adjustment coefficient. The 
apartments on the best floors according to Asian concepts such as 8, 9, 10, etc. shall have 
higher coefficients than the apartments on other floors. The enterprise can determine the 
coefficient of apartment position on each floor by criteria such as the number of openings 
(apartment in corner or at center), landscape in the balcony view, door direction to the East or 
the South or directions of stairs, garbage door, etc.) 
 Determining selling price for real estate. 
Using the above results, REEs can determine the selling price for real estate by the 
formula: 
Real estate selling price = Average real estate valuation price * Apartment selling 
price coefficient 
The apartment selling price coefficient is the adjustment rate of the apartment unit 
price compared with the average unit price of the project. The apartment selling price 
coefficient is defined as the multiply of the adjusted coefficients. 
Step 2: Independent appraisal firm 
According to the author’s recommendations, with the important role of pricing 
decisions in this period, after the pricing team has determined the real estate price, the 
enterprise should hire an independent appraisal firm to revalue the price determined by the 
expert team. The purpose of this step is to avoid the subjectivity of the enterprise itself and to 
give the enterprise the pricing decisions which ensure the market acceptance and achieve the 
profit goals of the enterprise. 
Step 3: Making pricing decisions 
In this step, like the same step at the time of project evaluation and construction, the 
enterprise management board shall base on the pricing results analysis report of the two 
appraisal organizations to make the final pricing decision. This is the decision that will affect 
the success of the real estate project. 
(3) Pricing decisions at the time when the project has been completed 
The pricing at the time when the project has been completed also includes three steps 
similar to the pricing at the two points of time above. However, the pricing at this time is 
based on the reporting system of performance results, fluctuations and causes of fluctuations 
for real estate business. In the surveyed REEs the real estate projects are normally divided 
into two cases. 
Case 1: The real estate project has sold most of the properties since its launch. Then 
the pricing at the time of project completion shall not be paid attention by REEs. Normally in 
this case the REEs do not change or if so they often increase the selling price of the real 
estate. 
Case 2: The real estate project still has many real estate products left. This case occurs 
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when the enterprise make real estate pricing decisions which are inappropriate with the 
market. In this case, the enterprise’s expert team should conduct a revaluation in full steps to 
revaluate the selling price to suit the actual cost as well as the market fluctuations and trends 
to meet the goals of the enterprise. 
In short, The pricing decision for real estate is one of the difficult decisions for the 
managers of the REEs. Pricing decisions in the REEs are often strategic decisions, which play 
an important role for the existence and development of REEs. Thus, enterprise managers often 
consider this to be the most important task for its historical mission and decisive factor of 
other tasks. 
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