Growing Financial Stress on Shoulders of Real Estate Investors

 

With growing financial stress on the shoulders of real estate investors, the pressure to sell to pay debts is leaving investors reeling. At the end of May 2011 Project Usilk City (Urban Van Khe district, Ha Dong, Hanoi) of Song Da Thang Long has decided to offer an additional 18 – 35 sq. metre commercial floor apartments to buyers, if the secondary investors accept to pay all remaining money in the contract of apartment sale, instead of paying by instalment as the terms stated in the contract. For businesses, this is considered as a shocking promotion of investment by previous owners, which customers had not even dreamed of.

 

In this context, most modern real estate projects in Hanoi are implementing promotions, discounts to attract customers. At the end of April 2011, Co. Sav-ills Vietnam exclusive sales for Eco-Park project decided to reduce prices by 12 percent, direct discount on the purchase price. Not only that, to the end of May 2011, the project continued to slash 10 percent off the price of apartments sold during the opening, bringing the starting price of apartments in this project to a mere VND18 million per sq. metre. Customers who subscribe to buy these apartments, villas and land adjacent houses in the project have received large amounts promotions from investors. Discounts range from 5 to 10 percent for apartment buyers who are committed to credit with fixed interest rate of about 18 percent per year, depending on the project. Not to mention giving the furniture package worth VND 200 million to customers who buy land, villas or houses.

 

According to Dr Nguyen Minh Phong, Hanoi Institute for Socio- economic Development, developments on the housing market as a result of credit reduction for non-manufacturing sector of the commercial banks (including securities lending and real estate investment). Since the time of execution of the State Bank’s instructions has come close, the investors aggressively draw funds to pay bank debts and reduce the borrowed credit.

 

Strong measures are taken to reduce credit loan for non-production down to 22 percent on June 30, if they does not reach the target on time, commercial banks will be subject to sanction, the SBV warned they will double the reserve requirement and limit the scope of business activities in the last six months of 2011 and 2012. However, many argued that a given target is not feasible.

 

The real estate freezes in the recent months has made the capital flow into this market drop, while there is pressing demand for capital from investors. Strong measures to restore market demand are implemented by the investors but the results obtained are not as expected. The credit departments of commercial banks agree that, in this current situation, it is very hard to collect real estate debts. The instability of the property market over the last few months does not give any hope of better change in the future. The gray picture is the overall state of the market today. Especially with the apartment market, unsold property means inability to repay the banks. Capital is still not recovered, so do not even mention debt payments.

 

Talking about June 30, a bank official said: "Until June 30, if a bank does not decrease to 22 percent and 16 percent on December 30, they will be fined heavily. Talking is easy, but literally reducing the loans for real estate business is difficult, right away on June 30.”

 

Some real estate investors also said that funds from banks into the real estate market are relatively large, thus, the heat of the market is sometimes subject to the mechanism of bank credit. If in the market, demand is greater than supply, banks seizing the debts are not a difficult problem for investors. But in the current situation, investors seem to face all the difficulties when the real estate market freezes and banks start to conduct lower lending rates, causing many constraints for investors.

 

Mr Nguyen Van Duc, Deputy Director of the Dat Lanh Real Estate Company, said: "The last time the real estate market virtually froze, projects could not sell or sold for only a very little amount. Even for the average apartment, many investors also had to accept the original price to expect to recover capital. Unable to borrow from customers, many businesses will not have the money to continue the project. If the situation persists, more negative consequences may occur.” Chairman of Vinaland JSC, Tran Minh Hoang, said: "Not only investors, but most customers who are buying apartments rely on credit funds. Meanwhile, previously, most commercial banks are closing credit for real estate loans, not to mention excessively high interest rates that have left many people wishing to buy houses cringing.”

 

Everyone can see that the ability of real estate business to repay banks is almost hopeless. Increasingly tightening credit, as the market freezes, real estate businesses cannot sell their products, even transferring the project to repay is not easy.