Pressure is on for firms to survive

The brutal reality of the property market will be too much for some companies

With a wry smile,  Thu Duc Housing chairman Le Chi Hieu said: “I will not be surprised if thousands of property firms announce that they will incur losses or go bankrupt this year.”

Hieu said the Instruction No.01/CT-NHNN, accompanied by other recently issued regulations covering housing sales, land compensation and fluctuating exchange rates had made it difficult for developers to mobilise investment capital.

“Hundreds of property projects cannot continue construction, products can not be sold while those developers who borrow with high interest rates will be hurt,” said Hieu.

State Bank governor Nguyen Van Giau last week issued Instruction No.01/CT-NHNN to gradually decrease the growth of credit to less than 20 per cent compared to initially planned 23 per cent. In particular,  the State Bank asked for banks to reduce credit to non-manufacturing sectors, especially real estate and securities, with the portion of credit to these sectors over the total outstanding loans not exceeding 16 per cent by the end of the year.

Tran Duc Phuong, general director of Nam Tien Real Estate Company, said enterprises depended on banks to mobilize capital as there were few options to them in Vietnam.

Phan Thanh Mai, general director of the property investment fund VPREIT, said it was difficult for developers to mobilise capital from investment funds, the stock market or via issuing bonds.

“Most investment funds pouring money into a property project whenever the basic foundation’s project was complete. However, most developers in Vietnam lack money to construct their projects’ foundations,” said Mai.

The current law allows developers to issue corporate bonds to mobilise investment capital. However, the majority of Vietnamese realty enterprises cannot get the right conditions to issue bonds. “Their financial statements are not clear. It does not create any customers’ faith,” added Mai.

Mai said the current gloomy domestic stock market made mobilising  capital from share issue unfeasible.

The State Bank’s policy to tighten money for real estate is not as new as Circular 13 last year, however the recent instruction will make mobilisation harder.

Truong Chi Kien, deputy general director of Him Lam Thu Do Real Estate Company, said with the current high interest rate enterprises must think carefully before asking for loans.

Hieu said that the enterprises would not only face difficulties in finding investment capital, increasing interest rates, inflation and price hikes in power and  petrol were also challenges. Meanwhile, it was difficult for developers to further increase their products price since demand was weak.

Hieu said in this context, Thu Duc House would focus on potential projects which have high liquidity. “At the current hard situation, not only Thu Duc House but other enterprises must re-consider business portfolios and strategies based on their real investment capital ability,” said Hieu.

Phuong from Nam Tien Real Estate, said: “Our strategy now is to invest and distribute land plots which have low investment capital and less depend on the loans. In addition, we will reduce expenses and wait for a while before launching new productions to the market.”

Tai Nguyen chairman Nguyen Gia Long said: “With projects being constructed by the company, we will mobilise capital ourselves, our partners and end-users. With the licenced projects constructed for a long time, we can only invest more after the economy looks more stable and interest rates are down.”

A Vigracera Land representative said it had started to find other effective mobilisation capital channels such housing saving funds or real estate investment trusts.

Tran Minh Hoang, chairman of Vinaland Real Estate Company, confirmed the company would start Vinaland Tower in Ho Chi Minh City at the end of this year.

“I do believe that our company could cope with difficulties since we have been very well prepared for fluctuation of the market,” said Hoang.

Meanwhile, some will keep a wait and see attitude.

Lam Van Chuc, chairman of the Phuc Duc Real Estate, said the interest rate hike had impacted on enterprises.

“They do not dare to ask for loans, except the ones who have  surely gained benefit from 30 per cent upward. With the determination of the government, I hope that the situation will be better in the coming time,” he said.

However, developers still keep their belief in the brighter economic and property market outlook. “I think that current difficulties are only temporary and we have foreseen them. We hope that government’s solutions to stabilise the macroeconomy will soon bear fruit. I do believe that the real estate and stock markets will recover if the macroeconomy is kept stable in the last six months of this year,” said Hieu.