Real estate developers risking it all in new segments

Real estate developers risking it all in new segments, illustration photo

Despite the mouth-watering profit figures investors expect from their projects, the real estate market is a minefield or risks, especially for those who come with little experience and a “follower” mentality.

Viet Duc Steel JSC (VG PIPE), a steel pipe and construction steel manufacturer, is now eight years behind schedule with its Viet Duc Legend City, an urban development project located in the northern province of Vinh Phuc, due to a shortage of finances. “We have been calling for investors to join but no-one has expressed interest,” said a VG PIPE source, adding that the issue is not a shortage of land but VG PIPE’s lack of capital and capacity to implement it.

Meanwhile, Hai Binh JSC (Habico) has also been stuck with its $220 million Habico Tower in Hanoi. Habico was originally a petroleum trader with no previous experience in construction – little surprise that the construction of this project was then found using unqualified materials by competent bodies and was halted almost 10 years ago now. Since then, Habico has been taken to court by its partners for missing payments and racking up bad debts.

Real estate was also the fall of the central province of Phu Yen-based businesswoman Vo Thi Thanh after her Thuan Thao JSC – a trade and transport company – fell into heavy debt in the 2000s due to thoughtless investments into real estate. Thuan Thao collected many property projects such as the 5-star Cendeluxe Hotel Tuy Hoa, Thuan Thao Convention, Exhibition and Tourism Center, Thuan Thao Golden Beach Resort and Spa, and Sao Mai Theatre. By mid-2019, the company had to put several facilities up for auction with the starting price of VND500 billion ($21.74 million) to pay its outstanding debts. However, neither of the projects found prospective investors so far.

Despite the high risks, more and more non-core investors with initial good track for their new developments are jumping into property. Saigon Seaproducts Import Export JSC (Seaprodex) recently poured VND250 billion ($10.87 million) into a complex of trade, office, and apartment units for lease in Ho Chi Minh City. It has also invested VND500 billion ($21.74 million) in a 33-apartment building in Ho Chi Minh City.

Before that, Ho Chi Minh City Infrastructure Investment JSC (CII) also jumped into real estate by acquiring a range of projects nationwide. CII created a portfolio of projects in road transport, water infrastructure, and real estate. It is now developing five large-scale real estate projects in Ho Chi Minh City on the land it got from build-transfer infrastructure projects from the local authorities.

Agriculture group Dabaco Vietnam also recently set foot in real estate with a range of project such as Lotus Central, a 29-storey apartment building, and a social housing project in the northern province of Bac Ninh, in addition to Bac Ninh Trade Complex and Khuc Xuyen Industrial Cluster.

More and more newcomers are joining the game such as beverage giant Tan Hiep Phat, HG Holdings, Hung Vuong Seafood, footwear producer Bitis, or water tank producer Tan A Dai Thanh. The expansion of investment in real estate by non-core property businesses is a good sign for the market in the context of the current gap between supply and demand in the property market. Increased competition would also provide customers with more choice while developers can diversify their operations and cushion risks.

However, businesses cannot just rush in with guns blazing, putting in massive amounts of cash while disregarding their constraints on capital, capacity, and experience.

Phan Xuan Can, chairman of SohoVietnam, said the real estate sector is not for everyone. “Before deciding to invest in a certain project, investors must carefully look through the legal dossiers of the project, checking basic procedures such as detailed zoning, investment license, land use, taxation, and many others. They can use these to calculate the efficiency of the project,” Can said.

After that, investors must decide how the development would take place, which segment it would target, considering liquidity and absorption rates in the segment. “The scale of a project is very important. If the project is for a small population, the price of each unit must be very high, so liquidation would be slower than at other projects,” Can said.