Lenders ditch sour debt with property auctions

Projects are being offered through auction so that banks can avoid piling up debt, Photo: Le Toan

Earlier this month, state-owned lender BIDV signalled that it would organise an auction to put on sale the VND4.06 trillion ($176.5 million) debt of Tai Nguyen Trading Manufacturing Construction Co., Ltd. at the Kenton Node hotel complex project, a billion-dollar urban area project in the south of Ho Chi Minh City.

The asset for auction is the land use right and assets attached to the land at the Kenton Node venture located in Nha Be district.

As VIR previously reported, this asset was mortgaged at three banks – BIDV, MSB, and PVCombank – with 58 per cent owned by BIDV.

Covering an area of 10 hectares, the initiative consists of three areas (plaza, Sky Villa, and residences) with nine buildings, 16 towers, and 1,683 apartments with full utilities. Besides that, the project would also house a 5-star hotel system, 586 condotel units, and a particular highlight is set to be the theatre. The project has a total initial investment capital of $300 million.

Previously, the largest state-owned lender has also sought bids for 65 apartments tied to the mortgage at The Era Town in District 7. The starting price was around VND2.1 billion ($91,000) to VND5.5 billion ($239,000) per apartment ranging from 160-368 square metres – equivalent to the average price of VND15 million ($652) per square metre.

Private lender Sacombank also followed suit by setting up an auction for its sour debts. A project of high-rise housing area and sport and recreation area in the Binh Tri Dong residential zone, along with a part of land, are being offered for sale at a starting price of VND6 trillion ($262 million).

The bank had ramped up its efforts to sell 37 land use rights of 7.2ha in the project of residential area of the Phuoc Yen service area in the Mekong Delta province of Vinh Long, with a price of VND343.4 billion ($14.9 million).

Techcombank has also put up large-scale properties for auction, such as two real estate projects in the southeastern province of Tay Ninh, worth VND1.2 billion (nearly $52,200) as of earlier this month.

Vietnam Asset Management Company (VAMC), a state-owned buyer of bad loans, issued five-year special bonds in a bid to save distressed financial institutions from either bankruptcy or suffering losses. VAMC is also in charge of purchasing distressed assets and putting them up for auction.

Recently, VAMC made a second announcement of selling loans backed by property of Vietnam Global Services and Trading Investment JSC that VAMC purchased from Agribank. Last August, the firm auctioned bad debts belonging to Dong Thien Phu Group JSC that it bought from Agribank for VND220.1 billion ($9.57 million).

A string of Vietnamese banks are marshalling their forces to sell collateral to regain some or entire amount originally loaned to the borrowers. Banks have long held on to the vast majority of these properties, hoping an eventual economic recovery will allow the disposal of these assets at acceptable prices. But now, banks are facing new demands for liquidity that will force them to sell more property.

Notwithstanding, market turmoil has thrown a monkey wrench in the works for real estate-backed loans sale.

Experts have raised concerns that many real estate projects are overvalued compared to the market value, making it difficult for banks to unload them.

On the other hand, the collapse in crude prices is creating mounting losses for ordinary investors, a sign that the energy crisis is starting to ripple beyond the oil patch. An addition, a gloomy economic outlook and market jitters is also preventing investors from pouring cash into risky projects.

Some analysts warned that the higher asset value is, the fewer buyers would be interested. This is because of global and domestic market turbulence, despite central banks offering stimulus packages and relief measures.

“Investors are now becoming more risk averse, and the majority of them are flocking to safe haven assets like gold. Putting a large amount of cash into property is simply not their choice at this moment,” said Pham Van Sy, director of the Property Auction Service Centre under Ho Chi Minh City Department of Justice. “Thus, projects with total value above VND30 billion ($1.3 million) pale in comparison with lower-value equivalents when it comes to attracting buyers.”

On the flip side, foreign investors interested in sour mortgage loans, especially ones located in sensitive locations might face many difficulties.