Developers feel the pain as market gets bite

Many developers are struggling to get their projects off the ground

Analysts say stagnation in the property market stems from government measures to rectify problems caused by rapid growth from 2001 to 2003, fluctuations in the gold price, a poor legal framework and a lack of capital.
High land and home prices continue to plague the market and analysts point out that rapid economic growth and the demand for higher-quality housing have driven prices nearly out of reach for the average buyer.
Opinion is still divided on whether the market will recover, but many analysts say the demand is there and the problem is simply how to get building underway.
“Seeking capital is now the difficult part of the equation for developers,” said Nguyen Thi Mui, deputy director of the Institute of Finance.
Finances are limited for most developers and they often rely on loans. Mui estimated that 60 per cent of investment capital for real estate comes from loans, while in some projects this figure approaches 80 per cent. This dependence puts developers in a bind since banks are wary of lending to projects in what is widely considered to be a frozen market.
Mui said banks lacked the information needed to appraise project feasibility and developers’ ability to pay, and life became harder still when banks rallied customers to pay their loans. She also pointed out that banks also find themselves in a quandary regarding whether to lend to developers, as they can only mobilise short-term deposits, while property developments require medium and long-term loans.
Nguyen Ngoc Bao, director of the State Bank’s Monetary Policy Department, said developers should not expect to get bank loans, as the banking system is already stretching to provide large sums for economic growth and inflation control. He added that although bad debts in real estate are currently low, the danger would loom larger if the market remained stagnant.
Property accounted for 10 per cent of total outstanding loans by the end of last June, with bad debts comprising 2 per cent.
“If the market continues to stagnate, bad debts will increase significantly,” Bao said.
He also said the State Bank had noticed risks in the real estate market since 2002 and requested that all commercial banks exercise caution over home lending and property development, adding that banks would only lend to those with stable income and a ability to make repayments. He speculated that reducing costs for developers through reform in fee and tax policies would prove vital to rejuvenating the market,
Ngo Tri Long, deputy director of the Pricing and Market Science Study Institute, said real estate prices in Vietnam were among the highest in the world per capita.
“The prices have exceeded the capabilities of enterprises who need land, and of a majority of population,” he said. “Therefore, land and house prices cannot rise in the near future.”
Long said the current situation depended on investment opportunities in other areas, government policy and the legal framework for real estate development.
“For the high-rise apartment market, there are reasons to be optimistic that prices will reduce to more affordable levels,” he said, citing Hanoi authorities’ recent downward adjustment of prices on high-rise apartments to $125 per square metre.
The State-owned Housing and Urban Development Corporation (HUD) is the first developer to announce price reductions this year. The company has cut prices in Viet Hung New Town, on the outskirts of Hanoi, by $20 to $30 per square metre.
“We can’t yet confirm to what levels the prices will go down but they will reduce to more affordable levels,” he said, adding that prices in the $400-per-square-metre range should be acceptable to middle class buyers.




No. 755/April 3-9, 2006