City seeks funds to build up ‘frozen’ real estate market

Vertically challenged: the second city’s real estate market has hit the skids

“The fund is vital as the city’s real estate market has ground to a standstill and is in need of huge investments to expedite housing projects,” said municipal mayor Le Thanh Hai at a seminar last week.
Hai asked the Ho Chi Minh City Economic Institute (HEI) to work with the municipal Department of Finance and other relevant agencies to flesh out plans for the fund.
Dr Tran Du Lich, head of the HEI, said Singapore’s Housing Development Bank model would be an ideal guide for the city to base its fund on.
An investment fund of this kind would sell redeemable trust certificates, or trust units, to the public as a way of pooling money for property projects.
Another option open for the fund in its endeavours to raise capital would be the sale of public land, added Lich.
“We will seek immediate approval for the securitisation and the establishment of a real estate investment trust on a trial basis, due to the absence of relevant regulations,” he said.
Lich also called for the introduction of policies to encourage investors to cooperate with one another in housing projects.
Lich added that it is necessary to allow the transfer of housing project ownership from one party to another, since this would help lure large companies into the Vietnamese housing market.
Saigon Real Estate Company’s Le Thanh Nha suggested an alternate way to mobilise long-term funds for the property market.
His proposal involves issuing real estate bonds, with the profits distributed to the bond holders once projects are completed.
These bonds could be sold to project promoters, joint stock companies, investment funds or other investors, added Nha.
Nguyen Van Khoi, director of the Housing Investment and Trading Joint Stock Company, said property developers were now faced with a dilemma as they could not make any returns from such huge investments in the market.
Investors who have already spent huge sums securing land, providing compensation, clearing sites and seeking bank loans for developments, are now faced with more challenges resulting from unclear and unrealistic policies, said Khoi.
“While the city government has asked real estate companies to take part in the development of residential areas and housing programmes for low-income earners, they have failed to help us resolve our capital shortfalls,” he said.
Local companies are in dire need of capital to carry out site clearance and infrastructure construction, but instead have been refused bank loans due to a lack of land-use rights certificates for collateral, said Dang Cong Thuyen, director of Him Lam Company.
Many companies are faced with the same dilemma due to the city government not granting certificates unless site clearance and infrastructure are complete.
“The city and the Ministry of Natural Resources and Environment should seek measures to facilitate the granting of bank loans, otherwise hundreds of property companies, especially small- and medium-sized firms, will go bust,” said Thuyen.
Banking experts claimed it was the obstacles and not the fear of risks that kept the banks away from the housing market.
Pham Van Thiet, deputy chief executive officer of Asia Commercial Bank (ACB), said the lack of safety precluded the development of a financial market for real estate.
He said ACB would invest millions of dollars in government bonds, which are easily traded, but would not dare purchase housing bonds issued by the city, as they are subject to so many different changeable factors.
If the city issued housing bonds that were safe and had guaranteed liquidity, a large number of banks and financial institutions would become involved in the market and provide a wide range of financial options for housing developments.
Ho Chi Minh City has about 1,500 real estate companies, but most of them are quite small and unable to handle larger projects.
The city allocated almost 13,000 hectares of land to investors from 2000 to July 2005, almost equivalent to the total area of the 12 inner-city districts.
However, many investors are are not capable of implementing their projects, and end up merely stalling the real estate market.
The city’s Department of Natural Resources and Environment also revealed that property transactions dropped 28 per cent in 2004, and 68 per cent in the first half of this year.
According to the central bank’s Ho Chi Minh City branch, banks in the city have so far approved loans for property projects totalling around VND29 trillion ($1.83 billion), or 17 per cent of their total outstanding loans.