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Property speculators wish for stalled projects amid slump
Property investors, who just last year expected to become millionaires, are now hoping projects are postponed so they have more time to come up with the money to make progress payments.
Their hopes may well be realized, with many Ho Chi Minh City property developers struggling to complete projects because of escalating construction costs.
The head of one construction firm, which is building an 18-floor apartment block near the heart of HCMC, has asked some investors to pay more than what the sale contract dictated.
He said the company sold more than 300 apartments at around VND12 million (US$722) per square meter at the end of last year, after laying the building’s foundation.
At that time, at the height of the property bubble, the apartments sold quickly.
But after building three stories earlier this year, the construction materials “price storm” hit.
Construction costs in Vietnam have risen as much as 40 percent since the end of 2007, according to a recent report by a branch of US-based financial Morgan Stanley.
The building company director said building the remaining 15 floors was much more expensive than the earlier floors.
The company tried to persuade its customers to help cover part of the surging construction costs but most of them refused.
A director of a real estate company said work began on a two-block apartment building project at the beginning of this year, two years behind the original schedule due to paperwork problems.
He said prices of construction materials went up four- to five-fold compared to early 2006 and labor costs were twice as high, creating a financial dilemma.
Meanwhile, speculators who last year bought apartments in the city are now hoping the projects are delayed.
One speculator, Hong, said she bought two off-the-plan apartments in the BMC Hung Long project in District 7 last year.
She said she refused to sell the properties at the end of 2007 even though someone offered to buy them at “competitive” prices, which would have delivered her a profit of VND800 million ($48,200).
But now, although she offered to sell the apartments below the purchase price, she has yet to find a customer.
“I can’t get a bank loan (for the next progress payment) or sell the apartments,” she said.
“So I am hoping the project is delayed or even suspended.”
The real estate market began to slump when the government began raising interest rates earlier this year to curb skyrocketing inflation.
Last year, many speculators who could afford to buy one apartment outright had decided to make down payments on three.
Developers were only asking for 20 to 30 percent of the total price.
Burning with property “fever,” speculators thought each apartment would generate a profit of several hundred million dong.
Failing to anticipate the repeated hikes in loan interest rates, the speculators also thought they would be able to take out bank loans if they had problems making progress payments.
The central bank raised the benchmark rate to 14 percent from 12 percent a year on Wednesday to cool stampeding inflation, which was 25 percent year-on-year in May.
Thanhnien
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