Bailout Message for Real Estate Market in 2013

At a meeting with Ho Chi Minh City, Prime Minister Dung noted that bad debts, inventories and property market stagnation among others are major hindrances to economic development. Therefore, the government and businesses need to join hands to overcome these problems.

 

He asked HCM City to review its planning because this was considered a long-lasting shortcoming. Concerning projects without construction sites or without consistency in master planning, demand and local development planning, he demanded a halt to them.

 

In addition, the city needs to accelerate the restructuring of real estate businesses, screen businesses, reschedule debts to deal with non-performing loans, set up risk reserve funds, study and build financial institutions to support the market. He demanded that "Enterprises without sufficient conditions and financial capacity must be firmly brought to an end and not be allowed to re-engage in real estate investment activities."

 

At this function, PM Dung with his two assistants, Finance Minister Vuong Dinh Hue and Construction Minister Trinh Dinh Dung, answered some questions and revealed solutions to problems presented by local real estate businesses.

 

In the meeting with Hanoi, he also laid emphasis on two groups of solutions to rescue the real estate market. The first is to review and adjust project planning, focus on affordable housing development, reduce high-grade housing, and classify projects for obliged continuation, discontinuation or restructuring of projects. At the same time, the city will issue policies on social housing development and social housing beneficiaries. It will also weigh changing commercial accommodations into resettlement areas, simplify administrative procedures, and minimise negative deeds. Particularly, interest rates will be brought to 4-5 per cent per annum - an affordable rate for most borrowers.

 

Along with macro measures, the Government and the State Bank of Vietnam will introduce overall schemes to tackle bad debts, of which 70 per cent are related to real estate. The formation of a debt repurchasing company will be one of solutions to support businesses through difficulties. In addition, commercial banks will have to restructure debts, set aside risk provisions, and actively settle mortgages.

 

Meanwhile, Finance Minister Vuong Dinh Hue said that the Government should direct the Ministry of Construction to accurately calculate and assess unpaid debts, outstanding debts and bad debts related to real estate, in order to help the Government to introduce resolutions.

 

For the near future, the ministry asked the Government to extend the payment term of land-use fees by 24 months for all project investors and payment amount will be based on sale progress. Projects with payment terms extended in accordance with Resolution 13 will be given extensions and granted a 50 percent discount on land rents.

 

Minister Hue said that tax reductions and exemptions for real estate businesses are necessary. Specifically, social housing investors will have a 10 per cent reduction of corporate income tax and the time of application will be six months before the effectiveness of the law, due on July 1, 2013; real estate and construction material companies will be granted VAT payment deferrals from January to March; and certain social housing businesses will enjoy 50 per cent reduction of VAT.

 

He affirmed that we will have a package of urgent measures in support of the property market in the near future, adding that if they cannot defrost the frozen market, they will make it warmer.

 

The freezing real estate market has held back the development of many industries, especially building material and furniture production. For that reason, this is compared to a “blood clot" that obstructs the development of the whole economy.

 

Unfreezing money flows for the real estate market is the key to promote development. Mr Le Huu Nghia, Director of Le Thanh Company, said the State Bank of Vietnam will inject VND20 trillion (US$1.8 billion) to lend homebuyers at an interest rate of 8 per cent per annum and terms of 10 - 15 years. If transactions are performed, the market will get VND20 trillion - a significant amount for property businesses to reduce inventories. With fresh cash, they will be able to pay loan principals for banks and non-performing loans will be then settled. The HCM City property market is reported to have inventory backlogs worth VND30 trillion and bad debts of VND4,145 billion.

 

To help low-income people buy homes, Governor Nguyen Van Binh said the State Bank will supply VND20 - 40 trillion (US$1.8 - 3.6 billion) to commercial banks to lend homebuyers with a 10-year maturity. The central bank will provide the biggest support for people by adopting flexible monetary policies to unfreeze the market.

In 2013, the SBV will focus on dealing with VND100 - 150 trillion (US$4.76 - 7.14 billion) of bad debts related to real estate. He noted that to make real estate market development healthy, we should take long-term solutions, especially real estate licensing, capital rationalising, and investor and price screening.

 

As planned, money will be first used for tackling non-performing loans; interest rates will be slashed to support businesses; and end homebuyers will be supported with mechanisms and policies.

 

The slump of the property market is partly resulted from trapped capital, most of which has turned into bad debts. Focused effort for bad debt settlement will be a necessary step to break the deadlock holding back operations of banks and enterprises in recent years. When cash flows are cleared, a new wave of investment will appear. At that time, the most visible reaction will be the rebound of the stock market and then the real estate market.