For real estate and securities investors, the year 2011 was a nightmare as their investments dropped dramatically in value. The year 2012 opens to wave farewell to the past dark year, and investors have reason to believe in a brighter year.
Waiting for new interest rates
What property companies will watch at the advent of 2012 is probably the interest rate signal. As known, one of the primary reasons for the real estate market freeze is the exorbitant interest rate of over 20 percent per annum and the tight access to bank loans. This reality forced capital-thirsty companies to borrow ‘black credit’ at an interest rate of 27 - 28 percent per annum.
The investor confidence eroded away because of inappropriate macroeconomic management mechanism. Many investors had to sell off their assets to shift into other business areas.
Perhaps, the belief is not full but the Government's commitment and determination to bring down inflation to less than 10 percent in 2012 is also a foundation to keep the trust of investors. According to an economist, if Vietnam can maintain macroeconomic stability, interest rates may be reduced to 12 percent per annum. This is within reach if Vietnam can keep inflation at a single-digit growth. Therefore, lending rates will drop to 15 to 17 percent. Such rates are acceptable for most investors.
While the sign of interest rate reduction has not appeared, to deal with capital thirst, investors have decided to sell off their assets and launched year-end promotion programmes. However, this method only works in popular segments with prices affordable for a majority of buyers. In the meantime, there is no sign of recovery in high-end segments.
According to Nguyen Quoc Khanh, President and CEO of DTJ Real Estate Distribution Company, the current development of real estate market will depend largely on interest rates. Housing demand remains very high but financial shortage is a common dilemma. If interest rates decrease to reasonable levels, people will lend more to buy houses. This will help warm up the market and prevent the downward spiral of property prices.
Opportunities for foreign investors
The sharp fall in liquidity in 2011 has inhibited foreign investors from investing in real estate projects in Vietnam.
Mr Phan Huu Thang, former Director of Foreign Investment Agency (FIA) under the Ministry of Planning and Investment (MPI), said: The apprehension of foreign investors is translated into their investment value.
In 2008, foreign direct investment (FDI) into real estate sector reached set a record of over US$23 billion but it strongly dropped to just US$7.4 billion in 2009 and US$6.84 billion in 2010. But, the real estate sector caught the largest amount of FDI capital. In 2011, FDI capital into property market plunged sharply. According to FIA, in the first 11 months of 2011, Vietnam licensed 919 new FDI projects and allowed 324 existing projects to hike their investment capital. Specifically, the real estate market drew just US$464.13 million, ranking fourth after processing - manufacturing industry; power production and distribution; and construction (more than US$1 billion each).
The shift in real estate investor structure is clearly shown by data released by the Vietnam Competition Authority (VCA) under the Ministry of Industry and Trade (MoIT). Vietnam saw 22 M&A deals worth US$250 million, mainly from domestic investors to foreigners.
However, this is a global trend. The Association of Foreign Investors in Real Estate (AFIRE) ranked Vietnam the fourth in the emerging markets about the level of attractiveness to foreign investors. The country also caught the special interest of Singaporean investors in relation with other Southeast Asian nations, it said in a report on global real estate market.
Remarking on the long-term prospect, Deputy Construction Minister Nguyen Tran Nam said when Vietnam remains a favourite destination for foreign investors, its real estate market will have a plenty of opportunities for development. He explained that Vietnam is a country with young population and fast urban population growth. This is the gauge for the Vietnamese property market. According to forecasts, Vietnam will need 905 million square metres of houses from now to 2015 and 1,026 million square metres till 2020.
According to many economists, financial difficulty of domestic property investors imperceptibly provides an unprecedented opportunity for foreign investors.
Mr Peter Ruder, Managing Director of Indochina Capital, said: "In fact, many foreign investors do not have enough confidence to continue their investment in the Vietnamese property market. The departure will be the opportunity for companies with long-term investment commitment, with sufficient capacity and actual responsibility."
Mr Khaw Aik Heng, Project Manager of Apave Vietnam, said that the Vietnamese real estate market is not a concern for foreign investors because they have long-term experience, capital and technology. He believed that high-rise building segment will continue to thrive in the future.
Luong Tuan
Vietnamese
