There has not been a sign of recovery for the Vietnam’s real estate market, not until end of next year. The market is still lacklustre and flooded with bad debt.
Minister of the Construction revealed at the Parliamentary Forum that the market currently has an unsold inventory of 16,469 apartments, 4,116 low-storeyed houses and 25,870 sq. m of offices for rent. These real estate products are mostly high-end, with only a few targeted towards the low-end market. Small houses which majority of people can afford are sadly lacking; Since the capital for real estate projects depends on banks and people’s deposits, the more houses remain unsold, the higher the bad debt number.
When confidence is undermined
The economic crisis and slower cash flow lead to numerous difficulties faced by the investors and speculators due to a freezing market. The real estate price has seen a 25-35 percent, or even 50 percent reduction at some places, and is forecasted to continue heading downhill. However, investors and people with real demand are yet to be convinced to put down their money.
What is happening in the market at the moment does little to support a sign of recovery. According to Mr Phan Thanh Mai, Secretary General of the Vietnam Real Estate Association, as of the end of third quarter 2012, the liquidity of the Hanoi and Ho Chi Minh real estate market is still extremely low, evident in a absorption ratio of only 5-7 percent given the aggregate supply of 111,500 apartments in both cities
The market is currently dealing with a huge inventory and serious confidence crisis. At the moment, government agencies, investors, speculators, real estate agents and buyers all believe in a serious plunge in the market and a distant recovery scenario. Therefore, no one will buy an asset with the expectation that it will decrease in value in the near future. People will wait until the bubble bursts and they will be able to acquire the assets at a much lower price than the current level. This mentality results in a huge drag on the market.
This confidence crisis is killing the market and undermining efforts by companies to free up their inventory to initiate their restructuring process. Market participants doubt one another. Government and businesses do not trust each other; banks do not trust businesses and people do not trust major investors etc.
During the Parliamentary Forum in the October 31 morning, Construction Minister Trinh Dinh Dung quoted statistics from the State Bank of Vietnam (SBV) which claimed that as of August 31, 2012, real estate’s outstanding credit is approximately VND203,000 billion, in which 6.6 percent is bad debt.
Outstanding credit related to real estate such as loans to real estate projects, real estate backed loans etc. represents around 57 percent of the total outstanding credit or more than VND1 quadrillion. This number is really worrying as regard to the impacts that bad debt can exert onto the economy.
Prior to the Forum, during a meeting between Mr Dung and the real estate companies, Mr Dung said that besides financial support package, banks need to provide long-term capital for real estate projects; there is an urgent need to create a more transparent market and streamline the real estate formalities procedures to improve the confidence level. Apart from the need to reduce prices on the companies’ part, the Government should allow businesses to change the initial design, or transfer the title in a timely manner, or completely withdraw from the projects if the businesses no longer possess the capability to finish them. Given the confidence crisis, there should be an official agency to deliver forecast on the market, on which that businesses and people can base their decisions.
Waiting for policies
With more than VND1 quadrillion real estate outstanding credit and a huge inventory, the real estate market needs a safe exit. The problem now is how to locate the source of capital and free up the mountain of unsold inventory.
The majority of the inventory falls under the high-end category, which comprises of big houses and luxurious mansions etc. According to Mr Nguyen Ngoc Khoa (Tan Hoang Minh Corp.), the inventory issue is not entirely the major investors’ fault, because there many approved projects which have to comply to the area plan and the population density and infrastructure standard as stipulated by the local administrative agencies.
Per the businesses’ request, the Construction Ministry suggested to segment the apartments to be more affordable to the buyers. However, with the population density standard remains unchanged, this proposal can not materialise.
Meanwhile, the bank’ capital flow is still slow due to a high real estate’s bad debt number. The capital flow into banks will remain an issue until the bad debt problem is completely resolved. Mr Tran Van Tan of the SBV’s Credit Department believes that next year, although credit for higher-end real estate and leased office market will remain tightened, the SBV is willing to lend to projects which are almost finished or catering to the social housing programs etc.
The banking system is trying its best to accommodate real estate businesses through the abolition of the credit rating system of businesses with unpaid loans. This also means that banks are loosening the requirements so that more real estate businesses can get access to the capital in this difficult period.
Nevertheless, the banks themselves are having problems with the bad debt restructuring process. Thus, the hope of a flood of capital into the real estate market will not materialise until the end of next year.
According the 52-page report of the 2012 socioeconomic condition and the plan for 2013 that the Government sent to Members of the Parliament, the lacklustre and potentially risky real estate market has seen no sign of recovery. The number of sold apartments is low and prices decrease for all market segments. The transaction volume sees a sharp plunge; there are even projects with no transactions taking place. The real estate bucket remains unbalanced; there is a lack of small and medium apartments which are affordable to the majority; and there is a noticeable shortage of apartments for rent.
According to its report, the Construction Ministry committed to do more research and suggest proposal to revive the real estate market and the legal framework in order to develop the market of apartments for rent. In 2013, the Government also commits to revive the real estate market.
Meanwhile, businesses are still waiting for policies to resolve bad debt issue, free up the capital flow and improve the confidence level in the market.
Vietnamese
