Unpredictable times in real estate sector

January 21, 2023 | 23:00
(0) user say
With issues persisting in terms of cash flow, real estate businesses and investors still hope various bottlenecks will be removed and a struggling market can recover by the end of 2023
Unpredictable times in real estate sector
Unpredictable times in real estate sector, photo Le Toan

The real estate market in 2022 lacked new projects, and even current projects open for sale are facing liquidity issues. Liquidity remains low with an increase in interest rates, a lack of real estate credit, and weak consumer sentiment.

Dat Xanh Group’s consolidated financial statements showed that, by the end of the third quarter of 2022, it had total assets of $1.36 billion, up 11 per cent compared to early last year. However, inventory reached $608 million, up 25 per cent.

For Khang Dien House Trading and Investment, total inventory value reached more than $522 million, up 65 per cent compared to the beginning of the year and accounting for nearly 60 per cent of total corporate assets.

Financial expert Dr. Dinh The Hien said, “Some businesses face the risk of bankruptcy because cash has been poured into many projects. They need to handle inventory and bad debts, and restructure activities, to clear cash flow.”

If the real estate business now borrows more capital from banks to issue bonds but still cannot sell their products, the debt ratio will increase, and the financial pressure will be much greater, according to Hien. “The government needs to consider certain resources to help the market through a difficult period. It could be a certain source of capital that lends or supports interest rates for workers who do not have a home yet. This will create new cash flow for the market while people can buy affordable houses to live in,” he said.

Real estate businesses also have high expectations that legal procedures for implementing project investment will be cleared up.

Duong Tuan Tu, general director of Anh Tuan Investment JSC, an investor in the Lotus Project Residence in District 7, said that his project had been frozen since 2017 due to administrative problems. “The project site has been undeveloped while we have to borrow cash from different sources. So, how can we survive?” Tuan said.

According to the Ho Chi Minh City Real Estate Association (HoREA), legal issues are the biggest problem, accounting for 70 per cent of the difficulties of real estate businesses. Nearly 150 projects in Ho Chi Minh City are facing legal problems. “If there is no timely and effective solution, the market may slide into recession, impacting the whole economy,” said Le Hoang Chau, chairman of HoREA.

Su Ngoc Khuong, senior director at Savills Vietnam said, “For the market to recover, it is necessary to have legal support in project development. We hope that these bottlenecks will be removed soon.”

Khuong acknowledged that Vietnam’s economy is greatly affected by global fluctuations. “In 2023, the market should change cautiously. The residential segment will still maintain stable liquidity. However, limited supply and absence of affordable products will affect things. Segments such as industrial and office real estate are doing well, and businesses will continue to have demand for expansion,” Khuong said.

From a financial perspective, unfinished projects need to be disbursed to continue construction and create new supplies for the market.

“For projects that have completed legal procedures, are eligible for a loan and completed, this is one thing we need to consider in lending investment capital. For projects that are not yet eligible, investors must wait a little longer to complete the necessary procedures to ensure market transparency and the interests of all parties,” Khuong added.

In addition, investors need additional capital from foreign direct investment, investment funds or joint venture partners to solve difficult financial problems.

In December at the fifth Vietnam Economic Forum, the Central Economic Commission, in coordination with other agencies, held a symposium on creating a healthier market. According to the Ministry of Finance (MoF), the capital market has gradually become an important medium- and long-term capital mobilisation channel for businesses, including real estate businesses.

By the end of November last year, the capital market size reached nearly 105 per cent of GDP in 2021, of which the stock market capitalisation was equivalent to 64 per cent of GDP. Through the capital market, real estate businesses have mobilised a large amount of capital through the issuance of stocks and bonds to implement investment projects and contribute investment capital. Over 280 real estate enterprises have issued corporate bonds to mobilise medium and long-term capital.

According to the direction of the government, necessary measures will be taken to stabilise and develop the capital market transparently and sustainably to ensure the security of the capital market.

Regarding the completion of the legal and institutional framework, the MoF is coordinating with the Ministry of Planning and Investment to review the overall provisions of the Law on Securities and the Law on Enterprises as well as guiding documents to overcome inadequacies in the stock market.

The MoF is also coordinating with ministries and sectors to amend Decree No.65/2022/ND-CP to suit the current conditions in the bond market. In December, the State Bank of Vietnam decided to increase credit room by 1.5-2 per cent to have an additional $10.4 billion to increase the total credit capital to $19.1 billion to pump into the economy.

The PM also signed directed the handling of urgent issues of the economy and real estate, including on credit capital supply, the corporate bond market, and removing barriers to housing development.

Investors bullish on real estate in 2023 Investors bullish on real estate in 2023

Despite a decline in optimism among real estate investors at the start of 2023, 70 per cent of respondents still expect real estate prices to rise and aim to purchase this year.

Stuck in the mud: reviving the fortunes of Thu Thiem Stuck in the mud: reviving the fortunes of Thu Thiem

Once expected to be the Pudong of Vietnam, after more than a decade of slow development the Thu Thiem area of Ho Chi Minh City is not close to fulfilling its potential, with incomplete plans galore.

Real estate stability on top of SBV agenda Real estate stability on top of SBV agenda

The State Bank of Vietnam is encouraging the lowering of real estate loan rates to assist enterprises in overcoming liquidity issues, a vital action that on its own will be insufficient to foster stable market development.

By Bich Ngoc

What the stars mean:

★ Poor ★ ★ Promising ★★★ Good ★★★★ Very good ★★★★★ Exceptional