Which Are the Solutions for Real Estate Market Development?

 

According to experts participating in the conference, the recent situation of the market is a certain result of inefficient and in-directive development process. Furthermore, the situation may be worse, but most people believe that corruption ability of Vietnamese real estate enterprises is quite low.

 

In conformity with Mr Nguyen Manh Ha - Director of Department of Housing and Real Estate Market - Ministry of Construction, this current situation makes excellent opportunities for investors in the field of small apartments. According to statistic figures, the segment of small departments with acceptable prices in Ho Chi Minh city and Hanoi is still small, and it creates a market space for the need of apartments and properties with common prices, small apartments with area of 30, 40, 50 sq.m and properties in preferable locations.

 

In a different view, the freeze of the market becomes opportunities to restructure real estate development strategy in the next time. Real estate companies with low capitalization and experience are highly capable of being merged or acquired. According to statistics of Ministry of Construction, in 2011, total value of merger and acquisition transactions (M&A) reached about US$4 billion, of which real estate and services relating to it such as recreation, tourism… accounted for nearly 24 percent. When the market is in hard time, and most of real estate enterprises have small or medium size, investment cooperation, merger and acquisition are good solutions to keep implementing projects if there is demand on them.

 

Assessing the trend of real estate market in the next period, Mr Tran Kim Chung of the Central Institute for Economic Management offers three scenarios for the market.

 

Scenario One: a most unlikely scenario, but most desirable, that the market is thriving. Conditions for this scenario are: the world economy is stable, euro zone gets over the public debt crisis. Along with that, the national macro-economy develops with high growth, inflation continues to be under control, interest rates return to 10 percent a year. Some real estate financial instruments, such as real estate investment trusts, mutual funds are formed ... Then, the market will recover through the bottom and thrive in lunar – calendar August. The period from March to September 2012 will be a period for testing and filtering real estate enterprises. A new stage of development, a stage of “financialisation” of real estate market begins. However, because the scenario assumes too many favourable conditions that happen at the same time, the probability of this scenario is quite low.

 

 Scenario Two: the most unwanted scenario because not any condition mentioned in the first scenario happens. Real estate enterprises will face huge difficulties. The market will decline severely. A bad wave will probably happen, and the projects will continue to stay stagnant. Many projects will continue to be frozen. If this scenario happens, secondary investors will leave the real estate market and the market will need a long time to recover.

 

Scenario Three, a scenario most likely to happen: The situation will continue as at present, policies continue to be studied, enterprises will continue to work perfunctorily, investors will continue to hope, some investors will narrow production.

 

However, Mr Ha said that, based on optimistic signals of the economy such as: planned credit growth is 15-17 percent, higher than the actual 12 percent, proportion of remittances for the property market is stable, ODA commitments reached US$7.4 billion in 2012 despite difficulties of the world economy, there is a chance for the real estate market to thrive again.

 

Mr Nguyen Manh Ha emphasized that the real estate market will be restructured, it will have a new face and new supply, accordingly high-level segment should decrease and be replaced by cheap housing segment, there are recommendations that owners of projects that have been approved and are being implemented, can adjust the size of apartments by increasing the number of medium and small apartments to suit market demand; therefore the transaction situation is expected to be improved, liquidity in the low and medium price housing segment will increase. It is necessary to develop rental housing, including social housing invested from the state budget, and houses for rent to enterprises, households and individuals, as well as to invest in rental housing needs of people in urban areas and industrial areas.

 

Mr Ha also said that, in April 2012, the Ministry of Construction will submit projects of house savings fund and make experiments in 2013, including simultaneously two models: Fund of developing and saving social houses is a house savings fund model which grants loans for low income people to buy or rent social houses, as well as gives loans for enterprises to construct houses for low income people, workers, social houses; another model is house savings fund for people with stable, medium income, operating similarly to house savings fund of Germany.

 

Mr Nguyen Van Hoang, General Director of real estate investment trust Vreit said that Vietnam is still a potential market for foreign investors, the opportunity for foreign investors to pour capital into the domestic market is very large; however the problem is how to unfreeze the Vietnam capital flows into the domestic market. Therefore, mechanisms and policies will be a key to open development opportunities for the real estate market.

Mr Tran Kim Chung also raised three issues to be solved in order to stabilize markets and create new development opportunities. Firstly, the government should really appreciate the apprehensive formation of policies for real estate market development, especially financial policies related to real estate. Besides, the government should consider about policies for real estate taxation.

 

Secondly, for the real estate enterprises, the most important thing now is to restructure the investment portfolio to suit the size and capacity of enterprises. In addition, enterprises have to mobilize the maximum ability of their human and material resources to complete unfinished projects to recover the invested resources, concentrating on medium term projects.

 

Thirdly, it is necessary for potential investors to restructure investment portfolio, choose efficient projects to invest, cut losses in uncompleted projects, gather resources to prepare for the new cycle.