Despite the current peak building season, the construction material market is now observing a small number of buyers. Products like cement, iron, steel and hollow bricks which have their prices fallen to the floor are unable to stimulate their sale. Traders say the buying capacity has been halved in comparison with the same period last year.
Price reduced, buyers modest in numbers
Concurrent price reduction to VND10-11 million per tonne is now seen in all kinds of steel. The retailing price of steels which are domestically produced has been halved compared to that in the middle 2008, namely, the prices of vein steel and wire rod haven been reduced to VND11 million and VND10.5 million per tonnes, respectively. Economic experts say this is very sensitive time for construction materials market because of its close connection with the real estate market.
As revealed by the Vietnam Steel Association, the main reason for this price depression is the import of about 60,000 tonnes of wire rod originated from Thailand, Russia and Korea in the first two months of 2009. The present selling price of this kind of steel is only VND9- 9.2 million per tonne (import duty and freight included), which is VND700,000- 800,000 lower than the price of domestically produced steel. Many local businesses had to conduct two price reduction total at VND700,000 - 800,000 per tonne in February 2009 and they are now selling at the price which is lower than the cost price.
Prices of other construction materials like hollow brick, enameled tile, cement and corrugated iron, etc… have also gone down. Owner of a construction material store in De La Thanh street said in addition to steel price, prices of other construction materials have downed by about 40 percent. Price of various kinds of cement downed from VND90,000 per pack to around VND68,000 per pack… This sharp price reduction is unable to stimulate the demand and the purchasing capacity remains low. “This is the lean year for construction material. Our sale in the first two months of the year is 60 percent lower than the same period last year”, seized Ms Minh, owner of a construction material store in Truong Chinh street. According to some other owners, even in this building time, the purchasing capacity is one tenth of that last year.
Using real estate as lever for construction material markets
As forecasted by the Vietnam Steel Association, the construction price might fell again in the coming time providing obstruct in their ‘output’. According to many construction companies, despite the reduction in construction material price and execution price, the number of works being put into construction has fallen by more than a half. The construction price (including workforce and materials) offered by the companies late first quarter of the year is considerably lower than the price last year. The construction price for houses class 3 and villa which was between VND4 million and VND4.5 million/sqm last year has fallen to VND3-3.5 million/sqm. 40 to 50 percent lower in construction price compared to the same period of 2008 is caused by the reduction in price of construction materials and labour, said a big construction contractor in Hanoi.
Construction specialists say this domino reduction is in fact a pleasure for construction companies, investors and people having demand for house building this time. However, because of the current economic recession and unforeseen changes in the market, a lot of companies and people are waiting and see. This sharp reduction has resulted in the fact that a number of construction companies do not dare to enter into long-term contract or assume responsibility for construction materials as the investor’s proxy as previously. Contractors now enter into tow or three month parts of the contract to minimise losses which the company and the investor may suffer in case of fluctuation in construction material prices.
Further to the low construction material price, the real estate price is standing at bottom with modest liquidity, then it is likely for the capital invested in the work shall be buried when the work is unmarketable upon completion. Although many real estate companies have downed their house selling price to recover capital, the number of successful transaction is modest. Meanwhile, commercial banks have yet been brave to loosen their credit “purse” for people to buy houses as advocated by the banking sector. As a result, the demand for construction material shall remain low unless the demand for construction raises and the real estate market is no longer stuck in stagnancy. Whereas, big price reduction has been conducted by local construction materials manufacturers, some products even has their prices reduced to less than the cost price and run the risk of suffering loss or bankruptcy.
Therefore, the Government should, in both long and short-term, provide “demand stimulus” policy to support people having demand for residential houses, increase the loans for real estate companies to invest in building low-priced houses, social welfare houses and serve the infrastructure development… then help unclog and develop the real estate market. The policy shall also act as a “rotating axis” for the sustainable development of local companies.
Luong Tuan
Vietnamese
