Vietnam Real Estate Market Needs 7 Years to Settle Unsold Apartments

That the term "ghost urban areas" is becoming popular reflects the poor status of current new urban areas. The number of unsold apartments now reaches thousands of units instead of dozens or hundreds as before. Abandoned mansions or villas are no longer a strange phenomenon. These are now referred as deserted urban areas. Sadly, they appear in all four directions from Hanoi.

 

Ghost urban areas are closer reaching the downtown. Previously, such urban areas were only seen in the suburban areas like Quang Minh, Nam Tu Son ...Now they begin to appear in Ha Dong district namely Van Phu new urban area, which has been completed and handed over to the people but seems to be in desolate condition.

Not only Van Phu urban area but also Van Canh urban area of HUD Corporation is also facing the same situation. Deserted roads, mossy stairs, no-light apartments have become familiar images in new urban areas today.

 

Giving assessment on the current market, many real estate experts shared the idea that the abandoned status of many urban areas stems from major causes such as asynchronous urban infrastructure and downward market price. On the macro aspect, it is the shortcoming in domestic real estate management policy which is yet close, failing to work out a specific binding mechanism. This has led to prevalent speculation and improper planning.

 

At the second half of 2010 when the market began to freeze, the virtual supply reached a surplus (abundant apartments on the paper). To date, this virtual situation has become a troublesome reality accompanied by many daunting threats which cannot be solved quickly. That is the concern of many experts.

 

At Economic Forum organized by the Economic Committee of National Assembly held in Hanoi on 28 and 29 September 2012, Prof. Dr. Tran Dinh Thien, Director of the Institute of Economics of Vietnam, in his speech, had a very vivid comparison. He regarded the current real estate status as a bad debt, a frozen blood clot which is very dangerous for the economic circulation.

 

According to the statistics of the research division, Dragon Capital, currently Hanoi and Ho Chi Minh City each have as many as 35,000 unused apartments. According to Mr Thien’s calculation, assumed that each apartment had value of VND1 billion, the amount of frozen money would be VND70trillion. According to Dragon Capital, it will take the market at least 7 years to deal with such a huge amount.

 

The number of unused apartments will continue to increase in the coming time when urban areas are is in the process of completion and handover to project owners. The market will be in serious imbalance. The paradox that ghost urban areas appear more and more while homelessness is on the rise will become the tragedy of the economy.

 

If these shortcomings are not addressed properly, it will negatively affect the economic and social life. These risks will exert a direct impact on the banking system. Statistics from 69 listed real estate companies shows that by the third quarter in 2011, these companies were burdened with debt of VND 67,000 billion, which led to an annual interest of around VND 13,400 billion.

 

The most notable lies in the structure of the debt when the short-term loan in the fourth quarter increased to VND 26,400 billion. Therefore, the real estate companies need to mobilize VND39,800 billion to pay due loan and interest rate in 2012. According to the analysis of Mr Tran Dinh Thien, with the current situation, the total amount of 69 real estate companies is only enough to pay a quarter of above-mentioned loan while the earnings before interest and tax (EBIT) achieved is only equivalent to one third of annual interest.

 

The number of apartments that lose liquidity has become a burden for real estate businesses. While the overall economy is still facing many difficulties, real estate market liquidity remains a tough issue.