Looking for Vietnam Real Estate Market Floor Price

Inventory is the biggest problem of the real estate market in Vietnam, besides bad debts. Market frozen, construction projects stalled because of capital shortage, businesses are desperately waiting for rescue policies. In the first quarter of this year, inventory is expected to rise sharply. According to the Department of Housing and Real Estate Market (Ministry of Construction), the quantity of apartment inventory has increased to 20 percent, equivalent to 33,852 apartments, land inventory of more than 1 million m2.

 

Official data of a responsible agency showed that in Ho Chi Minh City, among 121 projects, there are 14816 house inventories, 58.748m2 commercial premises, 300.071m2 lands with the inventory values ​​estimated at VND30,242 billion. Hanoi, as reported by 13 investors, has 5,875 house inventories, 5.459m2 of commercial premises and offices, inventory values ​​estimated at VND14,070 billion.

 

However, this number is still low compared with the reality, the number of units in stock even higher, due to the statistical figures are based only on unsold completed properties, and number of projects which people contributed capital but not yet implemented into some clearance projects, infrastructure investments are also excluded. The number of this kind of project is very large indeed.

 

According to statistics of more than 60 real estate companies listed on the stock exchange, the amount of inventory at the present time accounts for nearly 50 percent of total assets. Most businesses do not have the money on hand to pay for operations and debt.

 

This time many companies were no longer with the office market, many big names have suffered huge losses. Prices for apartments and land plots recorded significant reductions, but consumption remains difficult. Real estate prices are still expensive and people having demand are still patiently waiting for prices continue to fall further.

 

In expensive markets such as Hanoi, apartment prices have actually decreased quite large. Some hot projects are now decisively cut losses by investors, such as urban areas at Trung Hoa - Nhan Chinh, apartment prices once grew up to VND40-41 million m2, currently apartments are traded only at VND30-32 million m2. New apartment complexes N04 handed over in 2012 have prices fall to VND33-35 million m2. Song Da – Ha Dong apartment complexes have taken over 2 years now. By 2011, apartment prices reached VND22-24 million m2, now with a large flat area, it has bid VND17 million m2. Apartments VP2, VP4 Linh Dam with HUD as investor had sold for VND33 million m2 but it is now being offered at VND27 million m2.

 

However, buyers don’t rush to pay money because they expect prices to continue to further reduce due to the impact of pessimism in the market. On the other hand, they analyze that in fact, many projects prices still pegged highly, the publicizing of reduction of 25-30 percent is just a technical move with little meaning. For example, the Mandarin Garden apartment complex of Hoa Phat Group, though investors were allocated houses to pull prices from about VND40 million/m2 to 26 million/m2. If the apartment is perfect, prices actually fell slightly. On some big property sales websites, many customers accept the losses of 23-25 ​​million/m2 they cannot sell goods.

 

Many projects have been campaigning to save themselves, as of April 2013, 50 investors conversed 31,000 projects from commercial into social housing, mainly in Hanoi and Ho Chi Minh City. Businesses faced losses and proceeded to sell apartments below cost but in this situation, no one is sure that the market will witness a new wave of discounts.

 

As the market has declined in a long time and prices were softer, plus action from policy support, market support package is also implemented with VND30 trillion, many are optimistic that the market has hit bottom. This means that the market will go up; prices will no longer be cheaper.

 

Mr Doan Nguyen Duc, Chairman of Hoang Anh Gia Lai Group, said the real estate market has hit bottom, accordingly, the price offered in the market is now at the lowest level possible. And he called to buy house now. This is a good time for buyers to make a decision to buy. Affordable house segment prices will not be reduced further despite incentives package the Government launched.

 

But it seems that people do not wait to buy real estate at this time. Many experts warned about the interest rate of 6 percent/ year for 3 years is not attractive and too risky for people to borrow money to buy land.

 

At a recent seminar about the resilience of the market, a number of suggestions said that the market is approaching the bottom; the bottom will fall by the end of this year and will enter the recovery period from next year. Accompanied by a bad debt condition is resolved. According to statistics, balance of the banking system is 2.7 million billion, bad debt ratio is 6 percent. The real estate loans accounted for 58 percent, or approximately VND250 trillion. Real estate inventory is about 140,000 billion units.

 

Measures to handle debt are suggested, but the implementation steps are delayed. In the context that bad debt is still there, or not handled effectively, the market will take 4 -5 years to recover.

 

So, whether market can break the ice is dependent on policies. However, due to limited budgets, Government can not pour big money into the market, although the government has chosen orientation to support market rather than let market regulate. The problem is that how the policy can support in the context where market is too bad.

 

It’s visible that support policy is to target at home buyers, rather than support specific projects. However, 6 percent of interest for the first 3 years does not create customer confidence. Many experts recommend to lower interest rates to about 5 percent fixed in 15-20 years time so that people can afford to pay rates, which is attractive enough for them to decide to buy the land at this time. So the market will have ability to escape the quagmire of liquidity.

 

Prices also have to be lower to support the market. Businesses won’t face losses if the market does not accept higher prices. The problem now is to cut losses and accept the grim market. Mr Dang Hung Vo, former Deputy Minister of Natural Resources and Environment, said that with the level of technology, materials, and management ways, the current price of apartments in Hanoi, Ho Chi Minh City at about VND8 - 14 million /m2 is reasonable. In Hanoi just only some projects have “reasonable” price.