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NEWS

Why real estate is ready to rebound in Vietnam

27-05-2013

Vietnam’s property market has never undergone such large, long-lasting difficulties as it is now. The property crunch has badly affected all sectors in the economy.

At present, property price has been plummeting, with many projects and land areas having been sold at reduced prices, in order for investors to shed losses and pay loans. However, the market’s purchasing power remains weak.

Looking back to the property market over the past times, the ups and downs of prices have been ascribed to many reasons. This market used to develop to a point that demand far outpaced supply.

Thinking that “buying means success,” individuals and organisations engaging in the property market pushed prices to a peak. It seemed that most of them were speculators, not those with real demand for houses.

With huge profits easily reaped from this market, many investors including individuals and organisations joined property projects, though they had no property experiences and their investment was dictated by emotion.

Besides, running after the crowd and profits, many enterprises have failed to obey construction-related requirements and standards. As a result, low-quality property products have resulted in customers’ reduced confidence toward the property market. Thus, though housing prices have remarkably decreased, there remains low demand due to customers’ declined confidence which cannot recover overnight.

Furthermore, rampant swindling in capital mobilisation and utility of capital from the state coffers for property projects have gradually been brought to light. Even, state management agencies’ weaknesses in construction planning and management, project approval and granting land title-deeds have also been exposed. Meanwhile, there have also been more and more disputes over construction, management and usage of tenements.

All these problems have increasingly darkened the property market. When there is no confidence for the market, it is impossible to determine the equilibrium of property demand and supply.


Many real estate projects have been put on hold as investors run out of cash amid market woes
Photo: Le Toan

Revitalising the property market is a must

Given such a situation, many solutions have been discussed to revive the property market. Some said the market should be allowed to self-adjust for equilibrium. Still, it would be more persuasive when some said the market should be supported indirectly with close supervision mechanisms, because of some special characteristics of Vietnam’s property market.

Firstly, this market closely pertains to various sectors involving a big number of enterprises. Hence removal of this market’s difficulties is quite necessary for the sake of enterprises in general and property investors in particular.

Secondly, this market remains unprofessional. This could be seen in its overheating growth for a long time, while investors come from many sectors of the economy, despite their feeble financial health. Consequently, investors have failed to fulfill their responsibilities and neglected their initial commitments due to low-quality products.

In general, the majority of individual customers use their own capital and part of this capital is mobilised from their families, relatives and friends or from banks. It is their lack of professionalism that has prompted them not to sell products when the market declines, in hope of the market’s recovery.

Thirdly, the market boasts great potential and has developed not in line with the real demand. Despite a huge property inventory which cannot be classified exactly, property supply remains humble as compared to people’s big real demand, because too many people now cannot afford a house. Besides, many people who have already had houses also want to upgrade their houses with bigger size and even buy more houses.

Fourthly, despite economic woes, there remains a speculation capital inflow now waiting for opportunities to jump into the market. Given weaknesses in property management, local authorities should use sturdy actions in approving projects. Therefore, difficulty-stricken enterprises’ projects sitting at convenient locations would give profitable opportunities for investors.

The government’s Resolution 02/2013/NQ-CP on addressing a number of potential solutions to solve production and business difficulties was enacted in early January 2013. And some measures have already been applied.

However, over the past four months, guiding documents for implementing this resolution have yet to be promulgated.

Two basic solutions including changing commercial houses into social houses, and supporting those in purchasing or leasing social houses remain controversial, due to a lack in detailed guiding documents. For example, when commercial houses are divided into small apartments, there will be big changes in planning, designing, environmental protection and fire-safety activities.

The problems including construction of social houses and changing commercial houses into social houses are also controversial because of a lack of criteria including who will be allowed to change their projects and how legal aftermath will be solved in the wake of the change. Enterprises are now awaiting clear-cut solutions from authorised agencies, so that their difficulties can be removed as soon as possible.

However, there would need cautious plans and close examination and supervision over this change. This is to prevent enterprises from taking advantage of the government’s preferential policies in order to massively change projects for profits only, without heeding their responsibility and the government’s core target, which are both to facilitate people to approach social houses more easily and melt the property market’s standstill.

It has been encouraging that Vietnam’s macro-economic situation has continued being stable since early this year, with remarkable improvements in banks’ liquidity. This is a good basis for Vietnam to lure more foreign direct investment (FDI). In general, the committed and disbursed FDI continues to come, with property business ranking second via total newly registered and added sum of over $300 million.

Despite some positive credit growth, enterprises still find it difficult to access loans from banks. Positively, this means that banks have taken more caution when providing loans for enterprises. Nevertheless, this limits banks’ disbursement and affects enterprises’ performance.

Forecast for upcoming property development

With expectations for reduced taxes which will be considered by the National Assembly this May, and a VND30 trillion ($1.44 billion) bail-out for the property market with an average annual lending rate of 6 per cent already passed by the government, the property market will hopefully see positive changes during this year’s remaining months.

However, based on this market’s current situation, how to support this market should be learned from other nations’ experiences. But because Vietnam has its own characteristics, such support needs to be carefully studied in line with such characteristics. Supporting the market when prices still sit at high levels (not exactly mirroring per capita incomes) will no doubt continue to consolidate confidence for big property fever spells.

Supporting the property market needs to be in line with the restructuring of the market in the economy. There would be a need for the natural dismissal of badly-managed and financially-weak enterprises, so that the market can develop better, with customers’ interests as chief focus.

Thus, it is necessary to support the market. But the problem is how to select the time and methods for support, as well as what requirements and conditions will be imposed on enterprises, so that the market can be revived and sustainably develop.

With concerted actions from the government, it is likely that the property market’s liquidity will improve in the coming time. Whether recovery signals are clear or not largely depends on the implementation of these actions, which will help restructure the property sector and gradually restore investors’ confidence. This will help mobilise more capital from the public and foreign investors.

Booming of new investment methods

With the establishment and operation of the Property Investment Fund on July 1, 2012 under the Ministry of Finance’s Circular 228/2012/TT-BTC, it is likely that in the coming time, Vietnam’s property market will witness the booming of investments from property investment funds. Property investment fund certificates will be eyed by investors including individuals and organisations because this investment model is attractive. With their close legal supervision, incomes from these funds will be big and relatively stable. The growth in asset value in the long term will be far attractive than other share or bond funds.

As legally regulated, a property investment fund must earmark at least 90 per cent of its annual profits as dividends for investors. Additionally, along with Vietnam’s economic restructuring, the local property market will further attract investment funds around the world in the coming time.

http://vir.com.vn/news/en/property/why-real-estate-is-ready-to-rebound.html

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