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Capital shortage strangles property firms
Property developers say they face a serious resource crunch after banks tightened credit and government regulations have made getting advance payments from customers harder.
Speaking at a meeting held in Hanoi earlier this month to discuss measures to revive the real estate market, the chairman of C.E.O Investment Joint Stock Company, Doan Van Binh, said many businesses have been unable to generate funds for their projects and now find themselves on the verge of bankruptcy.
In the past they could count on funds from various sources – their own, bank loans and advance payments from customers. As they are only required to bring in a minimum of 20 percent of the total project cost, they used to raise the rest from buyers and banks.
But banks began to stop lending, especially against property and stocks, in February as the government tightened monetary policy to fight high inflation.
Binh said many developers who had spent most of their own money on clearing and paying for land, had no money left to build the foundation, which makes up 30 percent of the total project cost.
This left them high and dry since regulations do not allow them to collect advance payments from buyers before building the foundation.
Nguyen Van Duc, deputy director of Dat Lanh Real Estate Company, said since developers have had to call a halt to their projects, there would not be enough property products to supply the market. Besides, the credit crunch in Vietnam would make it easier for foreign investors to enter and take over the market, he warned.
“When local investors can’t generate funds for their projects, foreign investors will seize the chance to purchase them at low prices.”
Some realty businesses, however, admitted that the cash crunch was partly of their own making.
Statistics shows that 60 percent of recent housing projects have been too expensive for most home buyers. Developers did not pay much attention to the mid-level segment populated by genuine buyers.
Luxury houses fetch bigger profits but are more difficult to sell. As a result, banks are not willing to grant long-term loans to developers.
The State Bank of Vietnam last week cut its three main interest rates for the second time in two weeks. The reduction in borrowing costs is intended to make it possible for companies to access loans and support production, the bank said.
But according to many businesses, the central bank’s move to loosen its credit policy may be not enough to help the property market recover and then stabilize in the long term.
Binh said banks had once lent up to 80 percent of the cost of a project, but now it is almost impossible to get 50 percent.
Tran Kim Chung of the Ministry of Planning and Investment’s Central Institute for Economic Management said the real estate market needs medium- and long-term capital sources while commercial banks only offer short-term loans.
Viet Five Stars Company Chairman Nguyen Ngoc Duong said the Vietnamese housing market is still developing and requires large investment.
Tight credit policies would hurt its development, he warned.
Many businesses said setting up of real estate investment trusts (REITs) has become imperative because it would help bring in more capital.
Do Thi Loan, general secretary of the Ho Chi Minh City Real Estate Association, said REITs can provide a way out of the current credit crunch and are especially helpful for developers whose projects are hard to sell.
But the establishment of REITs is still under study, she said, adding the trusts have become highly popular in many countries, including Asian countries.
An analyst told Thanh Nien that the hardest challenges are yet to come. Developers will have to figure out a way to repay their loans which are due at the end of this year.
Property prices would then hit a new low as developers lower their prices or even make distress sales to find buyers, he said.
Sacomreal, for example, said it is considering cutting the price of its apartments in District 7 by one fourth. Experts said this would push other realty businesses into doing the same.
Thanh Nien, TBKTSG
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