Land encounters downward trend

Landowners are generally being forced to sell at much reduced prices. Photo: Le Toan

In the last five years, land plots in the south of the country saw a steady increase in profits, from 15 to 40 per cent on average. Some projects with good infrastructure even experienced double profits – but the pandemic, inevitably, is changing the game.

Forced to sell a land plot in an area adjacent to Ho Chi Minh City at a loss of nearly 10 per cent, Nguyen Minh Hung in Thu Duc city said this was the most reasonable choice he could make now to cope with increasing pressure from bank loans.

Hung himself could not hold on any longer when his family’s small business had to close for months due to COVID-19, but he still has to pay interest for the debt for the plot.

Hung bought a land plot in Thuan An city of Binh Duong province, next to Ho Chi Minh City, at a cost of more than VND6 billion ($260,000) a year ago with the purpose to re-sell to gain profit. The increasing presence of COVID-19 however prevented him from selling this plot when the market became frozen with the lowest interest paid by potential buyers.

Trading activities have not only been halted in Ho Chi Minh City, but in all neighbouring provinces. Meanwhile, people have felt forced to sell land plots to collect their investment back in the context that they cannot bear the bank interest and no-one knows when the pandemic will be controlled and the market can be resumed.

“My target now is soon collect the investment back before everything becomes harder if the pandemic is long-lasting,” Hung said.

Figures from batdongsan.com.vn reveal that many owners offer land plots in Ho Chi Minh City and neighbouring provinces such as Long An, Binh Duong, Dong Nai, and Binh Phuoc. However, sales are not easy with much fewer buyers than normal, with owners forced to accept discounts and suffer losses if they want rid.

According to a report released in July by the Ministry of Construction, prices of land plots in provinces have dropped by 10-30 per cent currently, compared to the end of 2020.

Real estate experts said that the latest outbreak of pandemic is pushing real estate into a scenario where there is intense downward pressure on the secondary market. Nguyen Quoc Anh, deputy general director of batdongsan.com.vn, said it is significantly even more challenging for investors who are using finance solutions from banks and financial institutions.

“Those investors will be under pressure to reduce their selling price if they want to sell their land plots to reduce financial burden. If the pandemic is soon controlled and the market recovers quickly, the wave of cutting losses will stop but on the contrary, there is certainly a wave of distressing land plots to cut losses,” Anh said.

Real estate expert Tran Khanh Quang said that the unpredictable developments of the pandemic causing long-lasting social distancing over 19 southern provinces have pushed the real estate market into a standstill. Secondary trading volume has meanwhile dropped by 90-95 per cent.

The wave of selling-off land plots is forecast to increase sharply in the latter months of the year if the pandemic is not controlled soon.

However, Quang also said that “what is bad for one person may be good for another”.

“Investors who are holding cash in their pockets can utilise this opportunity to buy in distressed property. Those will bring benefits when the pandemic is fully controlled again,” he said.

In particular, Quang noted that, despite struggling with many challenges over the past 18 months, the country may only be witnessing a short-term slowdown of the real estate market, especially in land plots, a favoured segment for investors.

“Purchasing power may increase soon when the pandemic is under control. Moreover, the stimulus packages with preferential policies from the state such as tax reduction or payment extensions will help the market become more resilient,” he said. “The nature of the real estate market is sensitive – as easily as it can freeze, it can also very quickly become feverish.”