Property adds new spark to quiet market

Capital-hungry property projects are catching the eye of potential investors

A clear sign of this sea change came early this month when major brokerage firm Kim Long Securities (KLS) announced that it planned to withdraw from the ineffective securities business and instead centre its business plan on real estate.

The decision by KLS has raised expectations in the securities market that brokerage firms will seek out other investment channels in the face of the market’s lacklustre performance.

“It is very hard to make money in a tumbling [securities] market like one we are seeing at the moment. The real estate sector, meanwhile, is crying out for capital. Investing there is obviously more profitable,” said the director of one securities company recently.

The company in question now plans to shift investors’ cash away from securities to housing projects, thus creating a type of real estate security. Under the plan, investors who buy in these securities will receive the right to purchase the house at a future date, or have their investment reimbursed with interest.

The company said it was now co-operating with another securities firm to sniff out suitable housing which lacked the necessary capital to get off the ground.

This type of shift towards real estate makes a lot of sense given that real estate projects, especially small and mid-scale ones, are suffering capital shortage while there remains huge demand for housing from people with medium-sized incomes.

It is hoped the real estate securities will reduce the time and cost of developing housing projects. This should also result in beneficial flow-on effects for society at large with more housing becoming available for medium-income people.

It is not just the private sector which is getting in on the game. Early this year, in a plan to boost the real estate sector submitted to the government, the Ministry of Construction (MoC) proposed the foundation of real estate investment trusts (REIT) and housing saving funds. Both REIT and these saving funds are seen as forms as real estate securities as well.

Under the MoC’s proposals, people with only a modest amount of cash will be able to invest in housing projects and receive the right to buy a house in the future.

“But, I think it will take the government a long time to realise the plan,” said the director of a securities company that is now looking at investing in the housing sector.

However, these real estate securities were not without risks for securities companies, said Luu Nguyen Chi Nhan, deputy CEO for Saigon-Hanoi Fund Management.

According to Nhan, securities companies could incorrectly assess the feasibility of real estate projects because they lacked experience in the sector. Nhan also pointed out the lack of a legal framework when it came to securities companies investing in the real estate sector, a fact which could potentially lead to problems further down the line.

Funds, meanwhile, are believed to be more flexible in investing in diversified sectors than securities companies. Early this year, the Club of Fund Management Companies asked the State Securities Commission and the Ministry of Finance to make it easier for funds to diversify their investments. REITs were mentioned.