Firms have plate full of issues to chew on

Restructuring financial sources, tightening control of capital resources, as well as finding new resources are key issues for the real estate market to address during  the current challenging time.

Experts from banks, developers and policymakers sat together last week in Hanoi to discuss ways to rescue the real estate sector from the downturn in a seminar named “Real Estate Market – Solution to and Opportunity for Accessing Capital Resources from Financial Institutions.”

According to Nguyen Manh Ha, director of the Ministry of Construction’s Housing and Real Estate Market Management Department, one issue which developers need to address to navigate the current downturn was to restructure their portfolios and provide products which are more affordable to mass demand.

Ha said the demand in the market was still very high. However, more than 50 per cent of the current products are above mid-level and beyond what buyers can afford.

Therefore, he suggested, developers should consider dividing or redesigning units into less than 70 square metre each, so the total price could be reduced to less than VND1.5 billion per unit.
Meanwhile, Ha added, financial lenders should give priority for projects which have high liquidity and reduce their loans for luxury and high-end projects. Parallel government efforts must set up a legal framework for the establishment of non-bank financial institutions such as Housing Saving Fund or Real Estate Investment Fund to mobilise mid- and long-term financial resource for the market.

In previous times, the real estate market showed its weakness and unstable development.
The dependence of developers on banks and capital mobilisation from buyers, panellists said, pushes developers to a very difficult situation. Often they are unable to finish projects under construction and therefore they also could not sell the products. Many developers have been in the situation of big losses and an inability to pay debts.

Moreover, the downturn of real estate market has punished related sectors such as banks, construction material manufacturers as well as contractors.

Nguyen Van Duc, deputy director of Dat Lanh Real Estate Company, said that enterprises must rescue themselves, rather than depend on other factors before sinking into bankruptcy.

“My opinion is that developers should admit the loss even up to 50 per cent of the products’ value in order to sell stockpile as soon as possible otherwise they will face up with more serious problems in the coming time,” Duc said.

The downturn of the real estate market, Duc said could be lasted to the end of 2013, then “we must do now, not wait for any other helps from banks or government,” he added.

However Phan Thanh Mai, secretary general of the Vietnam Real Estate Association said that the market was receiving other active financial resources. Among those were VND30,000 billion ($1.4 billion) from government’s coffers and bonds to help enterprises to escape from downturn.

Moreover, under the green light of the State Bank, bankers have been continuously offering low interest rates to developers and buyers. According to reports from 68 financial institutions, more than 70 per cent of the old loans are now inheriting new interest rates of 15 per cent per year while new loans are offered interest from 10, 13 to 15 per cent per year. Those rates were reduced by 60 per cent compared to the rates offered before July 15, 2012.

Since April this year a range of bankers have offering their credit packages for real estate with total commitment reached to VND20,000 billion ($950 million). Among those are BIDV, VietinBank, ACB, Vietcombank, VIB and SeaBank.

Nguyen Manh Ha, Director of the Ministry of Construction’s Housing and Real Estate Market Management Department It is necessary to restructure real estate’s products so as to suit every pocket and keep close control of source of investment capital in real estate market to avoid speculating on the market. Banks should cut down lending for high-class projects, lower the proportion of outstanding for new projects and loosen home equity loan to solve financial difficulties of real estate firms.   In an aim to approach closer with source of capital from credit agencies, credit contracts efficiency should be enhanced to increase property transaction such as through improvement the method of defining land price, modification rules of payment income tax. Other important thing, the state that approved investment plan of the project and the investor of the project should not ignore the consideration of the feasibility of property investment projects. Specifically, the real estate project would not be deployed if it did not meet infrastructure as well as supply essential urban services.

Tran Kim Chung, Expert from the Central Institute for Economic Management Banks played the decisive role in providing capital for real estate development. Especially, in the present time, the banking system was holding a lot of assets as collateral, including real estate. Hence, the authorities should issue the legal documents on the secondary mortgage market because this would be a useful tool to increase the cash flow for real estate market. In the last six months of this year and before the Lunar New Year, the total outstanding loans for real estate system need to establish milestones of 2009-2010 again. Besides, to fit with the new property development stage, it was important to have a strong information system. The information should be provided from the concerned parties, including the participants in the real estate market, real estate exchanges, and state management agencies for real estate markets such as the ministry of Finance, banks, the ministry of Construction, the ministry of Planning and Investment.

Phan Thanh Mai, Secretary general of the Vietnam Real Estate Association Commercial banks and real estate enterprises should actively join hands together to solve bad debt problem. It’s time to put feasible fund models to support source of demand namely savings fund and the fund for low income people that would solve a huge inventory, loosen source of capital for property firms. In addition, it was better for commercial banks to consider reducing 2012’s profit target and continue to lower interest rate in 2013. Especially, the commercial banks should strengthen lending private consumption to buy house with medium-term loan and long-term loan.