Real Estate Market in 2012: Worries Remain

The real estate market in 2012 will continue to struggle with difficulties and challenges. This is the common thought of all of experts and enterprises attending the Conference of Enterprises in 2011 recently held by the Ministry of Construction. At the conference, the Ministry of Construction also announced Decision 2127/QD-TTg dated November 30^th 2011 by the Prime Minister on the Strategy of Housing Development till 2020.

 

Addressing the conference, Minister of Construction Trinh Dinh Dung said that industry-construction accounted for 41 percent of Gross Domestic Product (GDP), of which the construction sector alone contributed about 10.3 percent - 15 percent of GDP. Construction enterprises are the key force creating fixed assets which serve the development of many industrial sectors. Investment proportion of construction sector to the society reaches about 40 percent of GDP annually. However, apart from achievements, the Minister also pointed out remaining problems in real estate enterprises’ operations, such as difficulties in finding consumers for the market; and shortages of medium and long term financial resources to create a momentum for the real estate market. Market weakness in 2011 has exposed many downsides.

The year 2011 has marked a setback of the real estate market in most segments. It is also the year which has seen the highest number of enterprises operating in the property sector being forced to close down due to capital shortages and inefficient operations. Developing urban areas and houses without considering market demand, with no planning or spontaneous plans, delays occurring commonly in many places have led to asynchronous urban development, lack of infrastructure connection, waste of land resources and social investment capital. In Hanoi alone, when all projects are reviewed in order to create a common planning project of Hanoi capital, the number of schemes or projects being implemented or in the planning stage is 785, covering 59,078 ha; after review, Hanoi People’s Committee proposed and was approved by the Prime Minister to continue implementing in the first phase 240 schemes and projects covering 9,502 ha, out of which are 150 schemes and projects for urban areas and houses with the scale of 5,125.8 ha.

 

As for the product structure of the real estate market, the conference also pointed out inadequacies in the planning and structuring products in accordance with the social and economic situation. While there is a shortage of small and medium scale products suitable with the actual demands of people in term of prices and areas, there is an excess in products of large scale and high prices. Residential building accounts for only 4 percent of urban housing in the whole country. Hanoi is the city with the highest percent of residential building, which has however reached 16.64 percent. Meanwhile, in Ho Chi Minh City, this proportion is only 6.13 percent. Property commodity prices and house prices remain high and complicated, especially in large cities where speculation and marking up prices are still common. The mobilization of resources to implement development programmes in social housing is limited; therefore there is a lack of social housing funds regulated by the Government, causing difficulty for the housing of a large proportion of the urban population.

 

Looking at the present state of the real estate market, Dr Le Tri Hieu, Vice President of Ho Chi Minh City Real Estate Association said this state existed because many enterprises ran after the market despite their small amount of capital, taking out large loans to invest into many projects. When the market fell into recession and housing demand dropped, enterprises had no cash and were heavily squeezed by banks to repay the loans. First, those enterprises have to resolve liquidity and reduce repayment pressures and high loan costs through: accepting to reduce products’ prices, transferring or calling for investment cooperation in ongoing projects, merging and acquisitions. Those solutions will help enterprises solve immediate problems, handle project delays due to capital shortage, create opportunities to restructure investment activities, and reduce the number of employees and costs. However, in the long term, in order to avoid depending too much on bank loans, enterprises should take advantage of capital resources from other capital mobilisation channels such as from the securities market, from customers or appealing to institutions with financial potential to invest.

 

Mr Doan Chau Phong, Vinaconex Deputy General Director said that survey work, analysis and market assessment to capture demands of customer groups were extremely important. With that information, project owners could adjust and supplement flexibly suitable policies. In addition, in a bleak market, choosing the place to commence projects also plays an important part in the success of the project. Enterprises also should have good control of their capital.

 

The economy in 2011 has presented many risks. According to Minister Trinh Dinh Dung, in 2012 Vietnam will have to face with public investment reduction, therefore, capital for developing projects will surely be reduced; with capital supply decreases and interest rates increases, construction enterprises will continue facing difficulties and challenges that they have never dealt with before.