Project Owners and Investors: When Partners Become Competitors

“Deaths” on the real estate market are appearing more and more frequently, when the capital flows are stagnant, the liquidity lowers, many project owners have to reduce profits, or even cut losses to recover capital. In high-grade projects, while project owners are unwilling to reduce prices, secondary investors have accepted lower prices provided that they can sell their products. As a result, there are apartments of which prices have lowered by VND 3 billion apiece.

 

In the project of high-grade apartments Mandarin Garden on Hoang Dao Thuy street, Cau Giay district (Hanoi), although originally the contractual price is VND46 million a sq.m, and up to now 40 percent of total capital has been paid, many secondary investors are willing to sell at a price that is VND4-5 million/sq.m lower than the primary one. That means they accept a loss of VND 1 billion for an apartment of 130 sq.m.

 

Similar to Mandarin Garden, in Keangnam complex building on Pham Hung street, Tu Liem district (Hanoi), although contractual price was US$3,000 a sq.m for apartments with area of 100-160 sq.m, currently some secondary investors are offering prices from US$1,800 a sq.m to US$2,300 a sq.m, accepting the loss of about VND3 billion.

 

Everywhere in Hanoi, high-grade apartment projects are in the same situation. With apartments with the prices of VND32-44 million a sq.m, which will be delivered in 2013, investors are willing to cut losses from a few hundred million to VND1.5 billion a piece.

 

As for the ground segment, especially in western areas of Hanoi such as Kim Chung – Di Trach, Northern An Khanh, Southern An Khanh, Geleximco… the ground prices are going down quite deeply, many investors are selling villas at prices that are nearly VND10 billion lower than those in the peaking period.

 

Not only in high-grade apartment projects, but also in middle-grade ones prices are reducing dramatically. Currently, in many apartment buildings such as Victoria Van Phu, Hai Phat, Duong Noi… if original prices ranged from VND 20-25 billion a sq.m, by now investors accept prices of 30 percent lower than the original ones in order to sell products. Prices offered in the market currently vary from VND19 billion to VND20 billion a sq.m.

 

As explained by many secondary investors, with the current situation, the resilience of the market remains a big question mark, financial difficulties delay many projects, as a result, if the market recovers next year, its value cannot compensate for inflation during the previous period. Therefore, to create the cash flow cycle, cutting loss is the first priority.

 

For secondary investors, liquidity remains the highest priority because their capital is not large, many investors even use loans to invest, therefore surfing is the most favourite solution, with apartments with prices of under VND25 million a sq.m, normally they will buy all apartments traded in the transaction floor to speculate and make profits.

 

Investors’ accepting loss to sell products has revealed a large pressure of capital and cash flow in this period, although the discount money of billions of VND seems to be a very large amount, in fact for many investors, this amount accounts for a very small part of total capital they want to recover. For apartments with prices of VND7-8 billion, investors would rather accept a loss of VND1 billion to sell the product, than borrow elsewhere VND7 billion and then have to pay an interest of nearly VND1 billion monthly…

 

At the prosperous time of the real estate market, most of apartments projects were very attractive because of the connection between project owners and secondary investors. Most of products are sold to investors, very few of them are sold directly to people with real housing demand.

 

And until now, when the market began to have strong reactions, real estate products come back to their real values, the connection between project owners and secondary investors has been broken, each of them cares for his own business. And obviously in this “race”, the winners are secondary investors, because many of them have achieved the goal of selling products. As for project owners, because of many reasons they cannot lower prices and therefore they have to suffer more and more difficulties.