Apartment Investment out of Limelight

Not only in Ho Chi Minh City, where the demand for apartment buildings reduced over the past three years, but Hanoi is also sitting the same boat. Though the prices of apartment buildings have decreases, they are still high.

 

The real estate market experienced the land price fever in 2007 – 2008. After the years, the market had undergone a crisis due to the economic difficulties. In Ho Chi Minh City, where the real estate market had been vibrant and active, the trend to buy high-end apartments priced at thousands of US dollars per square metre had brought in high profits to investors and speculators. But now they cry out for losses. The prices of apartment continuously decreased during the period. During the land price fever period, The Manor, Saigon Pearl raised their prices to over US$4,500 per square metre, doubling the basic prices launched by investors. Currently, the prices of apartments under The Manor 1 and 2 projects, Saigon Pearl stand US$2,000 – US$3,000 a square metre. Many high-end apartment buildings introduced to the local market in the difficult time are priced below VND30 million per square metre. The prices are said to be 40 per cent-50 per cent lower than those of three years ago. Though the prices are reduced, the real estate market is still dormant. It is predicted that the prices would further decrease as businesses and speculators are meeting with difficulties getting access to bank loans. Meanwhile, there are new productions in the market with the basic prices are lower than those launched in the previous period. The basic prices were period lower that those launched earlier.

 

The apartment segment in the southern metropolis seems to be ahead of Hanoi, where the prices are much higher. Though forecasts about the slowdown of the Hanoi real estate market have been made, many investors had been stuck due to pinning high hope of gaining high profits in the market. At present, the Hanoi real estate market reports the biggest-ever abundant supply. Popular brands including Royal City with 4,000 apartments, Times City with 4,000 apartments in the first stage, Mandarin Garden with 1,000 apartments, Golden Palace with 1,000 apartments, Number One Thang Long with 1,000 apartments, Cleve Van Phu with 4,658 apartments. They are most high-end and middle-ranking facilities…It was estimated that more than 20,000 apartments had been offered for sales over the past months. According to statistics from Colliers International, Hanoi now has around 45,000 apartments. The biggest supply is in the West of the city such Ha Dong city with 28 per cent, Thanh Xuan District with 29 per cent and Tu Liem District with 14 per cent. Colliers International forecast that the total supply of apartments in Hanoi will hit 70,000 in the next three years and likely to be higher in years latter.

 

In fact, the real estate market is meeting with difficulties, the proportion of loans for non-production sectors would be curbed at 22 per cent by the end of June and 16 per cent until the year-end. The total outstanding loans of commercial banks will also be curbed at 20 per cent by the end of the year. The scarcity of Vietnam dong and high lending interest rates over the past months strongly hit the real estate market, of which the apartment segment was hardest hit. One of the reasons for the situation is that decoy-ducks often bought apartments from investors and then resold them with higher prices than the basic ones, pushing the prices of apartments to rocketing levels. True buyers found hard to buy apartments with the basic prices. According to a report from Vietnam Report, which conducted on 500 interviewees in Hanoi, the number of people bought property assets for investment purposes made up 61.9 per cent, of whom 47.7 per cent bought realty assets for short-term investments. Only 38.1 per cent bought realty assets for housing purposes. Most of real estate investments had been from bank loans. Therefore, when banks tighten control over credit growth and loans for property projects, the real estate market would be quiet and gloomy, leading to decreases in the prices.

 

Hanoi and Ho Chi Minh City, the biggest cities in Vietnam where have bustling real estate markets are struggling to overcome the crisis in the real estate sector. Investors and speculators are so worried about recent forecasts about the continuously gloomy future in the sector in the upcoming time. Businesses are waiting for positive signs from the government to facilitate businesses in the sector. Businesses had urged the government to work out policies, including loose credit growth from banks to facilitate the real estate market. Many businesses have even been lowering the prices to sell more apartment as, especially in Hanoi where people find hard to buy apartments with the basic prices. The trend is pushing speculators into more difficulties, as they would enjoy less or even no commissions when investors lower their prices. Many speculators had even sold their products at the prices lower than those of investors to get money back to deal with the rising lending interest rates.

However, it is difficult for them to get money back when the real estate market is gloomy. When the market was hot, people found hard to buy apartments, they even tried to buy with all conditions from investors. Therefore, in many cases, capital contributors tried to find out shortcomings of main investors so as to claim for their money that they had contributed to the investors’ projects back. For example, a group of capital contributors to Mulberry Lane Ha Dong has hired a law office and colleagues to sue CapitaLand-Hoang Thanh, the main investor of the project for selling products in US dollars. Another reason that is often used is sluggish implementation, a popular problem in Vietnam for years. A group of capital contributors to Van Canh residential area, whose investor is AZland, have also repeatedly sent documents about stagnant implementation to the investor.

 

These are not new problems in construction projects in Vietnam. In fact, capital contributors launched such lawsuits with the aim to claim their money back from such projects. Especially when banks tighten control over the banking credit growth, capital shortage has been a big problem for continuing real estate projects. The capital contribution to such project becomes a burden to speculators. However, capital divestment is now too late as the real estate market is so quiet and gloomy at this time. Director of a real estate company forecast that this is only the beginning of a new stage, when the balloon is going flat. Speculators are being hit most. Investors of apartment projects had resigned themselves to sell their products with breakeven prices or lower prices to quickly get money back, secondary investors had no choice to sell the products with lower prices and incur losses.