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Real estate prices hit bottom line
As the real estate prices keep decreasing, real estate firms are not able to earn much profit from high-grade apartment projects anymore. However, investing in real estate still remains full of potential.
Profit certain
Hoang Anh Gia Lai Joint Stock Company can sell an apartment block at Hoang Anh River View for $1,500/sq m on average. The price level is equal to only 2/3 of the price the company previously planned to sell them for at the end of 2007 and early 2008.
At that time, with the announced sale price of $2,200/sq m, the number of clients registering to buy apartments at River View was ten times higher than the number of apartments on sale.
“The apartment prices must be halved over the highest peak prices,” said Doan Nguyen Duc, Chairman of Hoang Anh Gia Lai. This also suggests a decrease in the turnover and profit of Hoang Anh Gia Lai Company in 2008, while the profit in 2009, which was previously expected to be VND 1,800 billion, may decrease to VND 825 billion.
“We will make a profit in all cases,” Duc stated. This is because Hoang Anh Gia Lai purchased the land several years ago at low prices.
The company, for example, purchased the land for the Phu Hoang Anh project in district 7 in HCM City at $400/sq m.
As the construction cost for every sq m of apartments for the company is low-cost, at less than $500, Hoang Anh Gia Lai does not need the market to heat up to earn a profit, while it just needs the market’s liquidity.
From now until the end of 2012, Hoang Anh Gia Lai will focus on implementing construction projects, with a total area of 2.5 million sq m of luxury apartments. The projects will bring the primary profit to the company until 2012.
Thu Duc Housing Development Company (TDH) has also been satisfied with its profit. The project on TDH Truong Tho apartments by the company, which is now under construction, expects to be available for sale by the second half of 2009.
Chairman of TDH, Le Chi Hieu, said that in early-2008 approximately 1,000 clients expressed interest in buying the company’s apartment. Most recently, 300 clients have registered online to buy apartments, while the company only has 200 apartments. Like the projects of Hoang Anh Gia Lai, this project will be profitable in any case, as the land price was very low.
Real estate prices bottoming out
Many real estate developers believe that the prices have bottomed out. The prices have dropped so dramatically because many speculators have had to sell land and houses to earn money to pay debts. The massive sale in the context of few buyers has certainly led to the sharp falls of housing prices.
The prices have also been decreasing because some real estate developers have decided to slash sale prices to take back capital, accepting profits lower than previously expected.
However, the lower-than-expected profit has made many other investors decide not to sell products at this time. They are waiting for better opportunities, when the market heats up. The apartments of Phu Hoang Anh project of Hoang Anh Gia Lai, for example, will be surely selling like hot cakes at $1,000/sq m, a level that can still bring profit to the investor. However, the investor still wants higher sale prices, and therefore, it has decided to borrow money from banks and mobilize capital from bonds to continue the project.
Real estate stocks
Real estate stocks are not recommended for stock investors at this moment as the real estate market has been falling. However, well-known real estate firms, like TDH, HDC, SJS, HAG and LCG, can still maintain good cash flow from contracts signed with clients in 2007. The companies have promised to pay dividends of at least 15%. TDH plans to pay 30% and HAG 40%.
With such high dividend levels, investors would be able to earn bigger profits than making bank deposits, as the real estate stocks now have low market prices.
Binh Chanh Construction and Housing Development (BCCI) is expected to list on the bourse in the coming time. The company reportedly gained a high profit in 2008.
As such, though the real estate market has fallen into crisis as described by many experts, a lot of real estate firms have not suffered from the crisis at all.
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