New Real Estate Investors Emerged

Six or seven months ago when prices of apartments and ground in Hanoi was escalating, I saw great disappointment in some friends of mine who were real estate managers.

 

Being insiders, they anticipated the freezing status for the long run when there were only few successful transactions.

 

At the year end, asked some for information for my writing, they were all indifferent. Some were quitting their jobs, while others chose to take long Tet holidays.

 

However, despite the dismal outlook, real estate trading centres are only the middle-men who can either keep or release their property. In this circumstance, it was project owners who suffered.

 

I still remembered my meeting with Mr Nguyen Do Viet, Deputy Manager of Song Da Thang Long Joint Stock Company (STL) in Nang Sai Gon coffee shop in Nguyen Chi Thanh Street, Hanoi on May 25^th 2011. He was excited to tell me that the promotional programme offering business centre ground applied for clients making early payment when buying houses in Usilk City Project was so successful.

 

When STL offered such a huge promotional programme, many people wondered why the project owner easily gave away thousands of square metres of trade centre floor to clients. However the secret was, at that time, STL had short term debt due of up to thousands of billions of Vietnam Dong. Thus, it was a good idea and even lucky at present to quickly push out property as Mr Viet’s company.

 

Several months after the shock of offering business centre floor when buying houses of STL, there was a wave of promotion and discount increase spreading from the North to the South among project owners. The promotional race was more and more serious and drew in many projects, not to simply accept interest reduction as initially stated by project investors.

 

As an inevitable consequence in investment psychology in Vietnam, the lower the price drops, the more clients are afraid and wait for further reduction. This was clearly seen when Real Estate Company Petroleum, although it offered 30-35 percent price discount in Petro Vietnam Landmark to have money for debt payment, only attracted 6-7 clients.

 

Another considerable consequence as summarized by Mr Adward Chi, Director General of Minh Viet Investment Joint Stock Company, investor of Tricon Project in Hoai Duc, Hanoi, is that the harder the market is, the larger the number of claims made by clients to project owners is. In case of Tricon Project, despite nearly selling out all products and then only having to collect money as scheduled, given the financial situation, many clients sought to delay payments for questionable reasons without being fined.

 

Complaints and claims are not only common at the Tricon project of Minh Viet, but also at dozens of other projects in Hanoi. Many project owners have a hard time handling both reasonable and unreasonable petitions of clients.

 

Many experts said that the real estate market will still be grey at least until the end of 2012. For survival, enterprises have to forcedly cut off investments which can be a potential burden. The path toward restructuring can start with price reduction, accepting loss in order to sell products as recently or sell the whole project or merge with another qualified company.

 

In Ho Chi Minh City, outstanding real estate transactions and mergers have been happening. For example, JSM Indochina Investment Fund transferred Peninsula Project to Sao Sang Sai Gon Company, Khang An Investment Real Estate Joint Stock Company transferred 80 percent of capital contribution to residential area project in Tan Tao A ward, Binh Tan district to Dacin Holdings of Singapore; and Hoa Sen Group (HSG) transferred land use rights in some projects to partners.

 

In Hanoi, selling price reduction is a recent occurrence. The largest reductions are of Linh Dam Office 3 Project or Kien Hung CT6 of Bemes, by VND 5-7 million per square meter each apartment. Meanwhile, transactions and mergers are starting to arise.

 

Ha Do Group can be regarded as the first unit in Hanoi to publicly offer real estate projects. Mr Pham Duc Thanh, Investment Manager of Ha Do, who makes direct negotiations in project transactions, said that many enterprises in Hanoi want to sell projects due to difficulties. There’s a paradox that the bigger the enterprises are, the more they want to sell out projects to get money back.

 

Mr Dang Van Quang, Director of NaViGat Real Estate Media Company, which conducted many real estate surveys and media projects for foreign partners, said that transactions and merges among real estate projects in Hanoi are mostly happened behind the scenes. It is due to assumption in the North that when enterprises have to sell projects, they faced big problems, even bankruptcy. Therefore, so far in Hanoi, Vincom JSC is the only one to announce a project transfer to partners.

 

Restructuring seems to be the decisive issue of real estate enterprises. However, it is not easy to define which direction to restructure with minimal loss. According to Mr Trinh Dinh Dung, Minister of Construction, in the current hard context, businesses should restructure from products to capital and technology. He even stressed that it is normal for some enterprises to dissolve if facing difficulties.

 

The “predictions” of the head of the construction and real estate sector might turn out to be true this year. Many experts estimated that in 2012, transaction and mergers will happen more and be more public. There will be also be many real estate enterprises leaving, either publicly or silently. However, after the hard time, a new real estate tycoon generation will be formed by those gradually observing and planning to buy at this time.