Big incentives mirroring big risks

A range of supportive packages has been given by domestic and foreign bankers to bring interest rates to around 11 per cent per year. However, homebuyers remain cautious.

Nguyen Van Lien, a 50-year-old man who came to see a Tan Hoang Minh Group model suites in Hanoi recently, was told he would be given a low interest rate in the first six months if he bought a unit in this luxury property.

“However, how I can know what the interest rate is after this period, which is stated as “floating”. Therefore, lenders must foresee the risk of interest rate changes, as well as the possibility of being fined when they want to pay back the loan before the valid time,” Lien said.

The progress of projects have also made customers weary. Nguyen Thi Nga, considering buying a unit in Golden Palace, hesitated when looking at the contract.

“This contract states that Mai Linh (the developer of this project) would have to pay us 10 per cent fine of the unit’s total value if it delays the project. This percentage is not reasonable at all because we would suffer from higher interest rates,” Nga said.

In reality, more than 90 per cent of projects are behind schedule. “It is nothing to ensure that we can receive the property on time then we have to be careful before paying,” Nga said.

Since the beginning of 2012, many homebuyers  have been put into a mess when they decided to buy apartments from projects with grand incentives such as big discounts, valuable presents or even free retail space.

However, after mobilising a large sum of investment capital from customers, many developers have delayed their projects and no one knows when these projects can be restarted.

Among those are Usilk City developed by Song Da Thang Long, AZ Van Canh Tower of AZ Land Joint Stock Company.

“The biggest risk is that developers could not finish the project due to a lack of capital and customers are the bearers, because they could not receive unit neither capital withdrawal.
In its latest report on residential crisis, CBRE Vietnam said that financial incentives such as discounts and promotions have been widely used to assist sales. This has developed into a frenzy of price competition, which stirs up media coverage and large public attention.

“However what lies hidden behind the scene, usually unnoticed by the public and the media, is actual construction progress at project sites,” the report said. Pricing seems to be the primary area of public attention, as indicated by the frequency of media coverage on sales incentives and discounts.

“A word of caution, though, is that prices can be misleading. After all relevant factors have been taken into account, the quoted prices may turnout to be expensive. For example, the unit will be delivered bare shell, or with arbitrary facilities and fixtures,” the report clarified.

“Be a smart buyer by studying developers’ reputation and past track records, since reputable developers will have the least incentives to fail buyers,” it advised. Major things which have to be mentioned to are good construction progress and clearly branded finishing materials.

“It is not unreasonable to believe that if the developer is responsible and wants to deliver a good product, they would be as well-prepared as they can, and would not abandon their commitments should the road turn a bit bumpy,” it added.