Where Does Money Go To?

Remarking on the real estate market, Dr Vu Dinh Anh said market management is confronting problems. In fact, we cannot control excess inventories. Credits for the property market tend to rise without any clear sign of decline.

 

According to statistics from a foreign property consulting firm, approximately 60,000 apartments in the two major markets of Hanoi and Ho Chi Minh City remain unsold (about 40,000 units in Hanoi and 20,000 units in HCM City). This is no small figure when placed in this gloomy economic context. Outstanding investment capital in the condominium segment only is becoming a burden for the economy.

 

Simply calculated, if 60,000 apartments are sold at VND1 billion each, the apartment market is burying VND60 trillion, or nearly US$3 billion, of the economy. Although the real estate value has declined in Vietnam, it remains unaffordable for people. According to the General Statistics Office (GSO), a paid worker has a monthly income of less than VND3 million, he must put aside all income for 20 - 30 straight years to collect around VND1 billion for such a purchase.

 

The State Bank of Vietnam (SBV) announced in April that outstanding real estate loans declined to VND20 trillion, but according to economic experts, this value should be reviewed. Dr Anh said real estate loans (including construction loans and real estate business loans) are included, the value must be at VND348 trillion - the same amount as announced by the National Financial Supervisory Commission (NFSC). Hence, property loans still rise, not fall.

 

It is quite certain that the real estate market has a very huge impact on economic stability. Current economic difficulties are partly resulted from the “freezing” of the property market. For that reason, the best way to “unlock” the economy is to revitalise the real estate market. And, the only way to revive this market is to reduce inventories by slashing selling prices of apartments. This will be the basis for the country’s socioeconomic stability, because the sale of 60,000 apartments means 300,000 people become homeowners.

 

He added that stimulus is a top priority at the moment because we can create new ones only when existing inventories are cleared and cash flows are unfrozen. And, as long as current inventories are not slashed, there will be no way out. Vietnam launched three restructuring programmes but the real estate market - the most important to be restructured and the key to solve existing economic problems – was not mentioned. Real estate companies and banks are financially tied to each other. The hardship of the real estate market is also that of the banking system. Hence, in the medium and long terms, banks need to join hands and share forces to revive this market.

 

Dr Anh also emphasised that, without determination and unanimity, real estate inventories will continue to rise in the coming time.

 

According to economic experts, increasing credits for the real estate market is the most important. Credit supply for this market must be kept stable and brought to the level in 2009 - 2010.

 

Currently, real estate companies have taken positive steps when they lower selling prices and offer promotional programmes to stimulate the market. Property prices in Ho Chi Minh City have significantly diminished while companies adjust business strategies and restructure supplies to meet the affordability threshold of the market, but there are not many deals concluded. The people still distrust the market recovery and they prefer waiting for certainty.

 

Deputy Construction Minister Nguyen Tran Nam said outstanding real estate credits approximate VND350 trillion, including large-scale infrastructure projects like roads and bridges. Indeed, nearly VND200 trillion of outstanding real estate loans (including land compensation money, housing construction and industrial zones) are small and this needs more money.

 

The real estate market is now quite sensitive to mechanisms and policies; therefore, the addition and reduction of capital in this market should be calculated in a scientific and flexible way. Lending may be trimmed to spare funds for land compensation and project construction, and increase home credits for people in real need.