Continued Solutions to Troubleshoot Property Market

The Government and many real estate companies have been working strongly together to reactivate Vietnam's real estate market.

Relevant agencies and companies are working together to radically resolve obstacles and inadequacies to revive the real estate market

Many real estate companies leave the market

Dr. Nguyen Van Dinh, Vice Chairman of the Vietnam Real Estate Association (VNREA), said that the lackluster and silent context of the real estate market is always expressed clearly by the performance of each company. According to statistics, bankruptcy or dissolution cases in the real estate industry in 2022 climbed 38.7% from a year earlier to nearly 1,200 companies. Operational companies must scale down their investment and make more layoffs. Many even have had to halt or postpone their investment and construction of unfinished projects, terminate new projects, and cancel share offerings to raise funds.

Real estate service companies have experienced a tough time. Most brokerages have suffered heavy losses or lacked cash flows, cut staff, reduced wages and closed offices. Up to 80% of brokers had to quit their jobs. In early 2023, brokerage firms continued their poor performance. Owners of small and medium-sized brokerages had to sell personal assets to keep up their operations.

Not only real estate investors and service providers, related companies have also been hit by the market decline. Many production companies, factories and workshops of more than 30 related industries had to halt operations and millions of workers became unemployed due to late payments from property firms.

Besides, market supply and absorption in the past year was alarming. According to Mr. Dinh, only 48,500 products were supplied to the market, equivalent to more than 20% in 2018. Structurally, high-end, high-value products accounted for a majority. The supply shrank and the overall absorption rate also declined sharply, reaching only 39% of transactions or 19,000 transactions, equal to only 17% of transactions in 2018. Notably, for ongoing real estate projects across the country, most had to be halted with an investment value of up to VND800 trillion (nearly US$35 billion).

Consistent solutions needed

To remove difficulties and promote the healthy and sustainable development of the real estate market, according to Dr. Dinh, regarding institutions and policies, it is necessary to speed up the process of amending laws to stabilize long-term development. The Working Group will soon submit to the Government for the promulgation of new decrees to address market problems to which solutions are obstructed by old decrees. Furthermore, it is necessary to foster social housing development, with stronger priority policies for this field needed to create suitable products for the market, stimulate transactions and start the production and business cycle for the whole economy. Above all, the Law on Land currently has many inappropriate contents that need to be properly amended.

Regarding capital policy for market development, the State Bank of Vietnam (SBV) should accelerate funding for the economy, including for real estate development to continue projects and reduce pressures on the market, he said. However, it is necessary to effectively control cash flows that should be targeted for appropriate product segments and priority projects.

For troubled real estate companies, the SBV should facilitate them to relax or postpone due loans as it did during the COVID-19 pandemic outbreak. In addition, it is necessary to offer preferential loans for companies that are developing affordable commercial housing, social housing and worker housing projects.

“A lending support policy for businesses is critical by issuing bonds or buying back their issued bonds," he analyzed.

For companies with many troubled projects, it is advisable to redefine business strategies and restructure product segments to increase the share of affordable product segments for easy adoption and early cash inflow, according to Dr. Dinh.

The Government continues to take more drastic solutions

On March 27, 2023, Prime Minister Pham Minh Chinh signed Document 178/TTg-CN on promoting solutions to difficulties in the real estate market. In this document, he requested ministries, ministerial agencies, and provincial/municipal people's committees to follow Resolution 33/NQ-CP dated March 11, 2023 of the Government, which underlines viewpoints, goals, tasks, solutions and actions for safe, healthy and sustainable development of the real estate market.

Previously, on March 11, the Government issued Resolution 33/NQ-CP on solutions to remove difficulties and promote safe, healthy and sustainable development of the real estate market according to the thorough and consistent direction on real estate market development.

According to Resolution 33, the Prime Minister assigned the Ministry of Construction, the Ministry of Finance, and the State Bank of Vietnam, according to their jurisdiction, to work together and with relevant agencies as well as companies to radically resolve obstacles and inadequacies to revive the real estate market. Specifically, the real estate market and companies must adjust the product structure and market segments toward more affordable property prices; pay attention to developing affordable social housing and worker housing; review housing projects and real estate projects to work with businesses to handle legal problems, especially in projects linked with corporate bonds and projects guaranteed by bank loans and funded by home buyers.

The Ministry of Finance is supposed to effectively perform its tasks assigned by the Prime Minister in Official Dispatch 1163/CD-TTg dated December 13, 2022 on the corporate bond market, carefully review and propose amending, supplementing and completing legal documents related to corporate bond issuance, especially via private placement and public offering; adopt harmonized, reasonable and effective measures and solutions to support enterprises to restructure bond debts, and restructure interest rates, payment terms, payment conditions in accordance with laws.

The Prime Minister requested the State Bank of Vietnam to urgently launch a credit program of VND120 trillion (US$5.2 billion) and direct commercial banks to lend investors and buyers of social housing and worker housing. In addition, the SBV has directed credit institutions to support real estate investors and home buyers to access credit sources; and continue to fund appropriate, marketable real estate projects with workable repayment plans.

In particular, the Prime Minister requested provincial/municipal people's committees to urgently approve general planning, zoning planning and detailed construction planning; adopt master plans and land-use plans; ratify 5-year and annual housing development programs and plans; step up land valuation and pricing, land-use fee calculation, land allocation and land lease to lay the groundwork for approving housing investment policies; actively review difficulties emerging from ongoing real estate projects; actively organize meetings, work directly with each business and each project, especially large ones, to learn about their problems to introduce prompt solutions within their jurisdiction; and avoid dodging responsibility or delaying administrative procedures.

By Quynh Chi, Vietnam Business Forum