Seeking Real Estate Capital

At the seminar, experts analysed various reasons of the decline and freezing of real estate market.

 

According to Pro Dr Dang Hung Vo, former Deputy Minister of Natural Resources and Environment, in Hanoi, 60 percent of capital is mobilised from consumers and small investors, whereas in Ho Chi Minh city, capital mobilised from credit accounts for 80 percent.

 

Regarding other capital resources for real estate market, a remarkable part is foreign direct investment (FDI). Pro Dr Dang Hung Vo said, all investors with high and long term capital think that currently they have many advantages when domestic investors are facing with capital problems.

 

However, he also emphasized that domestic investors who have difficulties in capital may also cooperate or transfer projects to foreign investors, they cannot wait for foreign ones to provide capital to save projects. It is not common solution for problem of lacking capital of real estate market.

 

Besides, mobilising capital from small investors, consumers through trading houses on paper is one of popular methods. However, because of market’s quietness, small investors keep waiting while real estate investors expect consumers and small investors to provide money.

 

With this capital, Mr Dang Hung Vo said that, it is necessary to forecast exactly when the market stops freezing, and what policies state management authorities have to affect it. If the market shows a trend of warming up, small investors and consumers will come to cooperate and help the market more vibrant. Meanwhile, Dr Nguyen Thi Mui, member of Advisory Council for National Monetary Policy said that, real estate enterprises should create prestige and brand to make people trust and provide money to invest.

 

Also according to Mr Dang Hung Vo, regulation allowing to make mortgage of Vietnam real estate in foreign countries is a proper policy, helping to solve the capital problem in the context of liquidity difficulties of the banking system.

 

For a long time, real estate market has been used to relying on capital from banks, however Dr Nguyen Thi Mui pointed out that: “Regarding commercial banks, they offer mainly short term loans, whereas investment in real estate require medium and long term ones. Therefore, if bank loans are granted to real estate investments, there will be liquidity risks both to enterprises and to banks”.

 

In addition, she also emphasized that: “Regarding capital solutions, facing directly to the problem, capital for the real estate market is a solution; however, if we merely focus on finding fund for real estate market, we will never find it. Instead, when one issue is capital, maybe from real estate enterprises themselves or from external resources, the other issue must be policies. If these two issues do not go synchronously, I think it is difficult.”

 

In fact, although interest rate ceiling has been reduced to 12 percent a year, there are no intermediate effects on real estate. While input of banks has been reduced, their output is still kept at a very high level that overdoes the capacity of people with real demand.

 

According to estimations of Dr Tran Kim Chung, with interest rate of 20 percent a year at present, the market is still in big difficulties and products cannot be sold, therefore enterprises must be restructured or discount products to cut losses. As the result, it is still hard to forecast the real estate market’s future condition. It is most likely that the market will remain as it is at present, enterprises will work perfunctorily and investors must keep hoping.

 

However, the worst situation that is out of prediction of many people will also probably happen when the European economy is still in a spiral of crisis, interest rate of VND remains high and inflation in the country increases again, real estate enterprises will meet more difficulties, the market will go down severely, projects will remain stalling and investors will leave the market. In order to recover, real estate market will need a very long time.

 

It is hard to forecast with certainty the condition of the market in the future, however several real estate experts still made comments about a new development period of the market. At this period, the market will develop stably and get independence from capital resources of banking system.

 

So where will new capital resources for real estate be? It depends on the activeness of the real estate market and regarding Ms Nguyen Thi Mui: “One issue is capital, maybe from real estate enterprises themselves or from external resources; the other issue must be policies. If these two issues do not go synchronously, I think it is difficult.”