Vietnam Real Estate Just Beginning to Collapse?

 

Large inventory, ineffective policyObserving real estate transactions, it can be seen that the number of people interested in the real estate market is growing steadily, the number of successful transactions are more than the previous stage, but it is not equal to the amount of inventory currently in the market (estimated at 16,000 apartments) with an estimated value of VND110 trillion. Along with that are about 10,000 apartments in completion stage, but delayed due to lack of funds.

Meanwhile, the market support policies are still not strong enough. The VND30 trillion real estate bailout package can not handle much inventory. The Vietnam Asset Management Company (VAMC) still fails to play its role in the liquidation of bad debts, and real estate bailout package also aims to assist low-income customers instead of the entire market.

 

Starting to collapse?The case attracting huge interest from real estate investors as well as people in recent times is that of the Minh Viet Investment Company, investor of Tricon Tower, denounced as deceptive, its CEO disappearing. Tracing back to the case, from November 2009, many signed a contract with the Minh Viet Investment Company to purchase houses from its Tricon project. The purchase contract clearly states that Minh Viet Investment Company should deliver houses to the buyers on December 31^st 2011, no later than June 30^th 2012. But so far, this project has only completed the foundation and has been suspended for the past several months.

This created a wave of violent protests from the buyers. Under these circumstances, Mr Edward Chi, CEO of Minh Viet Investment Company promised to make payment and compensation at the company's headquarters in C1 building, D6 Dich Vong in Cau Giay District, Hanoi. However, when they came to Minh Viet Headquarter, there was no-one there.

 

The case of Minh Viet Investment Company is not the first and only such story in the market. Previously, there were many real estate companies arrested for violations related to the apartment purchase agreement. In most cases, investors received money but did not implement the project as scheduled in contractual commitments. Typically, Mr Nguyen Hoang Long, Chairman of the members’ board of Vinh Hung Co. Ltd and Chairman of Vina Megastar, was arrested on charges of fraud and property appropriation in many real estate projects implemented by the company in Hanoi.

Mr Nguyen Van Duc, Deputy Director of Dat Lanh Real Estate Company, said that the difficulty of the real estate market is still looming and the breakdown has just begun. "There are so many businesses which cannot afford to complete their work, even more investors have fled or are selling or transferring to other investors," said Mr Duc.

Shortcomings in the management of the real estate market have caused enormous consequences for the economy, especially in the current difficult circumstances, the insufficiency is more visible. Talking about the cause of the collapse in the real estate projects, Mr Duc analysed that for example, one project is invested with only VND200 billion, and in the process of construction, its investment company borrows from many sources, with the land as collateral for example, to have some hundred billions of VND. It may owe debts of hundred billions of VND to materials suppliers. It manages to mobilise the same amount from its customers. It has acquired VND600-700 billion in total. And when the market freezes, the company cannot afford to continue to invest, while the number of buyers is small. It then leads to construction suspension. The project may be discontinued from 6 months to 2 years. During the suspension, the company still has to arrange some money to pay interest to the bank. Then when this company doesn’t have enough cash it must stop the work. There will be the possibility that the bank will seize and sell the project, or the company will sell it.

The company has to close down or even goes bankrupt due to its disoriented business. It will lead to enormous negative consequences to social security, especially for customers who already paid money, while still don’t have houses to stay, and they cannot take back the money paid to the investor.

 

According to Nguyen Van Duc, in this case, people need to join hands into a group for petitioning, so that the company cannot sell the project or the bank will not lend them more money.