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New year offers real growth prospects, NRE talks to VIR


A raft of government measures introduced in 2013 could provide a foundation for the recovery of the housing market if properly implemented Photo: Le Toan

Looking back over recent years we can see the market experienced a golden period following the introduction of the doi moi economic reforms, which seemed to be characterised by most developers earning super profits. It seemed to be a time when the seller was god and buyers had to beg for the opportunity to buy an apartment. The real estate market acted like a magnet attracting huge amounts of capital. The same situation has occurred in other countries when a subsidised economy transitions into a market economy.

But by late 2008, the property market had entered a depression.

Prior to 2009, the real estate market was either increasing or maintaining its prices. However, the opposite has been true in the last five years as the market has suffered from large inventories, low transactions and sluggish investment turnover.

Many people said that Vietnam’s real estate market had fallen into crisis. However, a foreign property investor I spoke to had a totally different point of view. According to this investor, a crisis is simply when there are no transactions, no credit, no construction activity and no investment.

Looking into the reality of the Vietnamese real estate market, all of these activities are still ongoing, just at a lesser rate than in previous years. It is maybe that Vietnamese people had become used to a market operating at fever pitch, that the come down felt far worse.

Last year the government implemented a raft of policies to address the slump in the property market. At the beginning of last year, the government adopted Resolution 02/NQ-CP.

The first solution addressed investors. Many investors proposed that they should receive financial support from the government. However, providing a subsidy to housing developers obviously wasn’t an option as the state budget had more pressing priorities. That said, the government did allow tax exemptions, slower payment of land use fees, land rent reductions and other measures. These solutions were implemented during the year and helped investors.

The second solution was to focus on increasing the demand and efficiency of the VND30 trillion ($1.4 billion) housing stimulus package.

This package was agreed in early 2013 but it wasn’t until the middle of the year that the Ministry of Construction and the State Bank could agree on how it would work.

The disbursement of this funding has moved at a snail’s pace. One of the reasons was that supply was very weak, while demand increased. Moreover, lenders were facing difficulties in accessing bank loans. Potential homeowners needed to be able to prove they could repay the loans based on their current incomes which proved almost impossible, while internationally this isn’t the case.

In 2006, Professor Muhammad Yunus from Chittagongo University in Bangladesh was awarded the Nobel Prize for his housing bank idea for low-income earners.

In the wider ASEAN region, Thailand, Indonesia and the Philippines have played with many ideas about how to allow lower income earners to afford to buy property without being saddled with huge debts.

We should learn experiences from those countries in order to create a special mechanism for low income earners to borrow money, in order to accelerate the disbursement of the assistance package.

The third solution focused on reducing the outstanding stock of high-end properties saddled with bad debt. The Vietnam Asset Management Company was put into operation from the middle of last year. However, the concern now is the exact figures of bad debt have not been released, nor what the structure of these bad debts is. Bad debt was reported in the high-end apartment, villas and semi-detached housing segments at the beginning of last year. However by the middle of this year, it was reported that 70 per cent of the bad debt was associated with land that had not yet had construction work done on it. That means that the issue remains an outstanding problem.

The Ministry of Construction recently finished its draft amended Housing Law and amended Real Estate Business Law which contain measures to reduce high-end property inventories. The real estate market was also slightly opened to foreigners who want to buy properties in Vietnam. It is expected that these laws will be considered by the National Assembly in the beginning of 2014 and could be approved by year-end. These laws could have an impact on the real estate market.

The solution for increasing capital for the real estate market has very significant meaning. Previously the real estate market used to attract capital from different sources, such as people’s savings, funds from small scale investors, capital from corporations, loans from banks, credit, the government’s budget and foreign direct investment.

However, all of the sources have dried up due to the risks inherent in the current market.

Another issue was that the country’s gold savings have not been leveraged into the property market. Figures from local newspapers claim that some 400 tonnes of gold are in the country in the form of people’s personal savings. The World Gold Council claims that this figure could even reach 1,000 tonnes. The question then remains, how to encourage gold to be diverted into the property market?

The final solution is the restructuring of the real estate market. Professionalism overall needs to be increased, particularly in terms of policies, laws, institutions, management, human resources and among investors and end-users.

In conclusion, 2013 was a tough year for real estate market and it will require long term solutions for it to recover.


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