Deeper capital focus required for real estate arena

Deeper capital focus required for real estate arena, Illustrative image (Source: VNA)

At this year’s Vietnam Economic Forum held on June 5 in Ho Chi Minh City, Deputy Minister of Finance Nguyen Duc Chi said that the capital market is an important channel for real estate businesses to mobilise medium- and long-term capital, to be in line with the investment nature of real estate projects.

“Along with the development of the economy, the capital market and the real estate market are closely linked and complement each other’s development, therefore the risks of this market can affect the sustainable development of the other market. Therefore, it is necessary to evaluate and recognise the development of both markets in order to have appropriate development solutions and minimise possible risks,” Chi said.

Over the past five years, the capital market has rapidly developed, following the direction of the Party and the state on developing a balance between the capital market and financial market. This market has an important contribution to the restructuring of public debt and public investment, the process of equitisation of state-owned enterprises and contributing to the overall development of the economy.

However, it can be seen that the market has not developed deeply and is easily affected by psychological factors, as well as the influence of the international financial and monetary markets.

“The land auction in Thu Thiem Urban Area has shown that there are still certain limitations in terms of land use planning, land valuation, tax, credit, collection of land use fees, compensation, site clearance, resettlement, administrative procedures on land as well as legal regulations on real estate business,” said Chi.

Moreover, through bank credit and capital market, real estate businesses have mobilised a large amount of capital for their developments. However, Chi said that mobilising capital of real estate enterprises through the issuance of corporate bonds also has potential risks for the financial market, and in real estate in particular.

“The issuance of high-interest corporate bonds lacks information and transparency, which may affect the financial position of real estate enterprises, and result in the consequences of low capital use and an unfavourable real estate market as well as making it difficult for the cash flow to pay corporate bonds due,” Chi stressed.

Meanwhile, Neil MacGregor, managing director of Savills Vietnam, said that the domestic housing market is and will continue to witness great demand along with rapid urbanisation and a golden population ratio.

“However, the supply of new projects is limited because of many existing problems and need many practical solutions to solve,” MacGregor said.

The process of issuing plans in the development of the market has been slower than the development of the market, causing a range of obstacles. “In 2020, the prime minister approved the national master plan for the 2021-2030 period. However, progress of planning for this period is very slow as only seven of over 100 plans have been decided and approved by the end of May,” MacGregor explained.

The current law system has been overlapping, especially between the laws on construction and land, causing difficulties in the approval process for domestic and foreign investors.

“The Law on Planning was passed in 2017 but the implementation process encountered many obstacles due to inadequacies and unclear regulations,” he said. “All the laws need to be rearranged and organised reasonably and effectively to avoid the overlap and support local authorities in the process of project approval and improve the shortage of land funds for housing development.”

One of the bigger problems is that speculation takes place in many localities, causing rocketing price increases and discouraging the end buyers. “This causes unhealthy development for society and the economy, especially when the land fund in big cities like Ho Chi Minh City and Hanoi is limited, easily leading to a real estate bubble,” MacGregor added. “A market that is not geared towards the end buyer cannot be sustainable.”

Regarding the auction of land use rights, he recommended that a more transparent public land auction process must be developed, which can invite foreign valuation units to support the urban development process. Besides that, it is possible to refer to some public land auction processes in more mature markets such as Singapore, Hong Kong, and others.

Le Hoang Chau, chairman of the Real Estate Association of Ho Chi Minh City, said that the relationship between real estate and capital markets needs to be effectively handled so that both markets can develop healthily, support each other, and avoid the risk of macroeconomic instability. “The hot issues that need to be solved right now are the unbalance between demand and supply, especially affordable houses for lower-income earners, the imbalance between premium and affordable house, and the rocketing increase of house prices,” Chau said.

Figures from the Ministry of Finance revealed that the size of capital market growth was reported at an average rate of 28.5 per cent per year in the 2016-2021 period.

Since the beginning of April, the market has had many adjustments, in which stocks of real estate companies have adjusted the most. By the end of 2021, the real estate market stood at an accumulated of more than $62 billion – the third-largest sector and one which occupies more than 15 per cent of total overseas investment in the country.