Apartment Market: When Consumers are Masters of the Game

While the real estate investment business in Vietnam increasingly felt "suffocated" by the serenity of the market and even more businesses went bankrupt due to thin capital, consumer demand for housing is strong which is a positive signal. Purchase opportunities at the right price are at hand.

 

According to statistics of stock company VNDIRECT, among 68 real estate enterprises listed on the stock exchange announcing consolidated financial figures in the third quarter, 8 companies have announced losses, ranging from VND1 - 4 billion. The majority of the remaining business, although not facing losses, saw sales drop compared to the same period last year, some even have revenue dropped by 99 percent. Real Estate Joint Stock Company An Khang has profit after tax of VND24.1 billion.

 

Pressure on real estate companies is growing while the supply of the market continues to rise, output remains unresolved, and there are few opportunities to sell companies now. Among the businesses announcing consolidated reports, 17 businesses had inventories increased sharply compared with the same period last year. Van Phat Hung, by the end of the third quarter, had inventory value reaching VND1375.65 billion, mainly in projects such as apartment buildings, hospitals (80 percent of total assets). The real estate company Phat Dat had inventory quantities up to VND4483 billion.

 

According to statistics of the Ministry of Construction, by September 2012, in 44 provinces, the number of apartments in inventory is 16,469, including 5176 low floor apartments, 1.624 million m2 of land, and 25.870 m2 of office and commercial centres. The HCM City market alone has approximately 10,100 apartments in inventory, including 1,000 low floor apartments and offices, and 19.000m2 of commercial centre space. Of the total 1,166 real estate projects approved by the Ho Chi Minh City People's Committee, only 195 projects are completed on schedule (16.72 percent), the remaining 815 are in the process of implementing projects, 14 projects have announced the suspension of construction.

 

Mr Le Hoang Chau, Chairman of HCM City Real Estate Association, said that the bad debt ratio in the field is very high, the country's bad debt accounts for nearly 9 percent of the total outstanding loans, the real estate market alone accounts for over VND1 million (57 percent of total outstanding loans). Currently in Ho Chi Minh City, several real estate businesses have large outstanding credit, and market difficulties make many of these business loans into bad debt.

 

The serenity of the real estate market not only affects the real estate business, but also causes a chain reaction, affecting many industries such as building materials, furniture, even the banking system. In the situation of real estate market losing liquidity, many construction materials businesses cut production, consumption declined which led to rising bad debts and many companies facing bankruptcy, forcing many banks into capital shortage and leaving those in the housing market without access to loans.

 

In fact, the government and departments came up with several solutions to overcome difficulties, such as issuing Resolution 13 directed the Ministry of Finance, the State Bank, and the General Department of Taxation to reschedule payment of land tax, VAT tax and corporate income tax, but it seems that "medicine" is not strong enough to cure the disease of inventory and bad debts of business.

 

Statistics from Savills Vietnam show that in the Hanoi market, in the third quarter of 2012, total supply of apartments for sale reached about 10,900 units, this is still the largest section of the market (accounting for 51 percent), in which class C accounts for the largest market share with 75 percent of the total number of apartments sold on the market, but the rate of absorption of the projects in this segment was only 7 percent. From now until the end of the year, the market is expected to receive additional 30,000 apartments.

 

According to Ms Do Thi Thu Hang, Head of the Research Department of Savills Vietnam, most buyers are now the end-users rather than secondary investors, thus the pressure on money flow today is very large, so in most projects, the investors offer new apartments when partly built in order to reduce the total amount of the buyer's payment.

 

The evolution of the real estate market is gradually removing secondary investors and ceding the market to people who have real need for housing. Therefore the game of “juggling” to push land prices up no longer exists. However, when the market belongs to consumers, opportunity for market recovery is very low.

 

Currently multi-segment prices have fallen sharply on the decline in the apartment segment; many projects have had prices reduced by more than 30 percent but still not improved liquidity. Currently, the majority of the projects apply promotions to stimulate demand, such as supported interest rate or offering a car or motorbike when buying a house.

 

According to many real estate experts, gloomy conditions on the property market will not be overcome in the short term, and investors should be prepared for the market decline to continue, especially for projects in outlying projects with low infrastructure connectivity.