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Navigating through heavy turbulence
The tightened credit flows and housing slump are taking their toll on real estate developers. Le Khac Hiep, chairman of Vincom JSC, spoke with Ngoc Son about how Vincom will navigate through the turbulence.
What will the future hold for the real estate market, which has seen housing prices plummeting and developers being cash-trapped to build?
The real estate market has been in a slump because banks are tightening property lending. In any market, financing property buyers through bank loans is very important in order for the market to grow. In this regard, as the fight against runaway inflation continues, banks will continue tightening property credit and buyers will shun from bank loans.
However, demand for housing in Vietnam is growing larger. The economy is still developing and a lot of people want to improve their living conditions. The key to the development of the real estate market is for banks to continue lending to home buyers. Vietnamese people attach great importance to having a house and a career and that’s why there will always be aspirations to buy a house. For many young couples, owning an apartment today is not out of reach.
However, banks are still refusing property lending. And if they do lend, home buyers do not want to borrow, as interest rates are as high as 21 per cent. When will these problems be resolved?
These issues will be overcome when inflation eases and the economy bounces back. If inflation and interest rates are reduced to single-digit levels, people will borrow to buy houses. I am confident that the macro economy will improve this year, or in the next two years. Real estate is a long term investment and we should prepare to build now.
What will developers like Vincom do to navigate such a bear market?
Each developer has his or her own strategy in this market. Many sell their projects and call for partners to continue construction while others slow down the development process and wait for the market to bounce back.
We are currently focusing on two important projects, including the construction of the third tower in the Vincom City Towers complex in Hanoi, and site clearance for another project in Ho Chi Minh City.
Ho Chi Minh City authorities have recently approved the compensation scheme for Vincom’s hotel, office and residence complex in District 1. What will be the next step the company will take in a market where developers are delaying construction?
The fact that our compensation scheme has been approved will allow us to work with residents occupying the land on site clearance. The compensation costs are much higher than before. The land prices for Dong Khoi street regulated by the municipal authorities are only VND80-90 million ($4,747-$5,341) per square metre. Yet, compensation in some cases costs more than VND350 million ($20,771) per square metre.
With compensation costs sky rocketing, will Vincom have to lower its expected profits from the development?
The development will not be profitable if we build only low-rise properties facing Nguyen Hue street, as required by the municipal authorities. Fortunately, we are permitted to build much higher on the site where the Department of Education and Training at Le Thanh Ton street currently stands and that will help us earn more profits.
Total investment for the complex was estimated at $250 million. As site clearance is getting more expensive and construction costs have sky-rocketed, how much more will you spend on the development, and where will the money come from?
We expect that total investment in the complex will be around $300 million. Last year we issued shares to raise the company’s chartered capital from VND800 billion ($48 million) to VND1,200 billion ($71.2 million). In addition, we have issued bonds worth VND3,000 billion ($178 million) for the development of the complex. With this amount of cash in hand, we have no present plans to raise more funds for the construction of this complex.
What will the company do with its other projects in Hanoi and Haiphong?
We recently broke ground for construction of a commercial, hotel, office and residential complex in Haiphong. However, we will slow down construction of this complex, as we have received permission to build the complex on a larger site.
We’ve invested in Haiphong for the long term. With the construction of a new express road from Hanoi to Haiphong and more foreign investment pouring into the city, demand for hotels, offices and residential facilities will grow.
VIR
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