Discounts rise in unit market

>> Price gap cause bottleneck

The latest cuts in price of apartments on offer by PetroVietnam Power Land Joint Stock Company (PVL) and Saigon Mekong Company have led to predications the trend will become more widespread.

PVL previously announced a 35 per cent price discount on apartments to ease financial pressure and repay bank loans meanwhile Saigon Mekong Company also reduced a 19 per cent of its apartments for increasing the liquidation.

Vu Quoc Thai, general director of VietRees, a real estate agency told VIR he predicted that investors and developers and even sub-investors would be forced to cut their prices, to trim debts.

"The real estate market now is under pressure on many fronts and among those is a shortage of cash and increasing debt," said Thai.

He added that interest rates were high, and more importantly, many banks were taking a tough stance when it came to collecting on their debts.

This meant a huge amount of pressure for investors selling their accommodation products to the market, and especially those who have been selling in certain duration but still have much unsold.

"Further price reductions could be seen as a "must-to-do" for some investors if they do not want to things to get more difficult financially. If they can sell off their products by the end of this year, they can reduce the loss and they will be able to restructure their portfolios and have cash to solve many urgent problems such as paying debts and regular expenses, as well as salary payment and many other vital problems," Thai said.

Recently, real estate investors had needed to reduce their prices, whether through promotions, incentives or transferring the whole project to other sub-investors, said Thai.

"In the coming time, prices will continue to show a downward trend, especially for projects which have less competitiveness. I believe reducing price will continue at mid, high grade and luxury accommodation for all segments. This is a vital survival tactic for the market," Thai said.

He described less competitive projects as those with less competitive locations, a lack of special designed products and a reasonable sale proportion or simply those where the investors were pressured by debt.

Thai said in the long term investors should look at incentives, gifts, interest support or expanding the payment schedule, instead of slashing prices. This was because reducing prices had a strong negative impact on customers who had bought products earlier as well as impact on the prestige and brand of the investors.

Meanwhile Adam Burry, senior manager of Research & Consultancy of CB Richard Ellis Vietnam commented that while there had been a spate of recent property promotions, these varied in nature.

He said these were not always as simple as a straight price discount, though the net result was obviously reflective of a reduction in price.

"With it being apparent that some developers are suffering at the current time, with evidence of construction progress slowing notably or stopped and downgrades of profit targets by listed real estate groups, it is apparent that pain exists within the sector.  In an attempt to boost cash flow in order to service loans and appease investors it is likely that developers will continue to stoke the market with differing promotional offers, including the possibility of price reductions," Burry said.

This had raised the spectre of a domino effect with developers potentially looking to compete with their rivals, he added.

But some in the market believe that limited liquidity and confidence mean immediate price reductions may not be enough to generate the sales necessary to survive the current downturn.

"We have noted an oversupply of units within the market during 2010 and 2011. For the prices indicated for many of the units it is apparent that the current demand does not meet supply. We therefore fully expect continued price decreases," Burry added.