“At present, we are like the people suffering serious illness, which can knock us down any time”, wailed a real estate business owner in Tan Phu, Ho Chi Minh City. “Since Lunar Tet holiday, there have been only few people on the construction site while the manager has been busy requesting a delay in paying debt and asking customers for an extension of handing over houses.
It is easy to find similar stories. Even tired investors had to admit their lack of capital to seek sympathy from customers.
Unsaleable goods, worse financial situation
Looking at the reports in the fourth quarter in 2011 of real estate companies listed on the stock, it can be seen many losses. Song Da Urban & Industrial Zone Investment and Development Joint Stock Company (SIS), once being a blue chip, unveiled 2011’s accumulated net loss of VND71.04 billion and profit of VND456.98 billion.
About 90 percent of real estate enterprises saw significant reduction in profit growth against 2010. Even there was a business with profit in 2011 only equal to 1 percent of that in 2010, like Phat Dat Real Estate Development Joint Stock Company. Similarly, powerful business as Hoang Anh Gia Lai also witnessed its profit decrease by 89 percent, from VND 2,085 billion in 2010 to over VND 224 billion in 2011. Sai Gon Thuong Tin Real Estate JSC (Sacomreal) suffered turnover from providing goods and services being down by a half, from VND1,092 billion in 2010 to approximately VND540 billion in 2011 etc.
Explaining for business result, most real estate companies said that decreasing profit was cause by long lasting difficulty market, low percentage of transaction and strongly growing financial costs.
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As reported by HCM People’s Committee, from 2006-2011, capital demand for real-estate sector in HCMC in the period 2008-2010 was about VND 190,000 billion, only 12.72 percent of which can be met by enterprises. Most of the businesses had the owner’s capital account for 15-20 percent of total investment and bank loan account for up to 80 percent.
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Worries from financial lever
It now can be seen that most of real estate businesses listed on the two stock exchanges suffer debt ratio on the owner capital exceeding 1, even up to 2 or 3. It means that their properties are mainly from debts and it is reasonable for them to face difficulties in liquidation with unsaleable goods. Higher ratio is positive in the context of business market, increasing purchasing power and high dividend for shareholders. On contrary, with down going market, it is really a burden for the enterprises.
Base on data from Financial Statements by the third quarter in 2011 of over 100 enterprises working or being involved in real estate sector, short-term debt came up to over VND55,000 billion and long-term debt reached over VND85,000 billion. Meanwhile, the inventory in this sector has seen an increase in the past two years when the market was frozen with decreasing amount of cash and cash equivalents. If there is turnover, they can tackle due bank loans; otherwise, there’s no chance for them in a grey market. At that time, there will be a wave of property deliverance like mortgage deliverance happening in 2010 and 2011. Thus, given average annum interest of 20 percent, unsaleable goods, without turnover, they can be led to bankruptcy.
SGTT
Vietnamese
