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Real estate market hits the wall
Following a turbulent couple of years, the real estate market is now facing a significant shortage of capital that might bring new development and construction to a standstill.
According to statistics from the HCM City Real Estate Association, roughly 60-70 of on-going real estate projects in the city have seen delays due to capital shortages and lower market demand, with property consultants estimating that the city had a glut of roughly 40,000 apartment units.
Tighter credit, the rising costs of fuel and construction materials, and the devaluation of the dong are combining to halt the rapid development of apartments, offices and hotels that has prevailed in recent years.
Real estate loans currently make up 23 per cent of total outstanding commercial bank loans, a figure that will be cut to 22 per cent by June and 16 per cent by December of this year in order to meet Government targets for tighter credit, said Deputy Director of the Research Institute on Market and Pricing Science Vu Dinh Anh.
"This means that real estate lending will decline by roughly US$5 billion in 2011," Anh said.
"Developers, contractors and investors in housing projects largely depend on loans from commercial banks," said former Deputy Minister of Natural Resources and Environment Dang Hung Vo. "These projects will be the first to be affected by the Government's monetary policies."
Meanwhile, soaring inflation and the recent dong devaluation of nearly 10 per cent have driven up the prices of construction inputs, including materials, labour, fuel and electricity. Dat Lanh Real Estate Company Deputy Director Nguyen Van Duc said developers would have to renegotiate new rates with contractors and suppliers based on these surges.
"The real estate market is going through a transitional period in which the order is being rearranged," said Head of the Hanhud-Land Real Estate Company's Management Board, Nguyen Van Dinh.
The speculative phenomenon whereby investors borrow money from a bank to buy property and then resell it at higher prices would be risky with lending interest rates now at 20-21 per cent a year, said Dinh.
Vo concurred, saying a "temporary" withdrawal of capital from the real estate market would happen soon which would squeeze out many investors without financial capability.
"But this is a necessary change to close the gap between the bubble price and real price of properties," Vo said.
Nguyen Manh Ha, Director of the Ministry of Construction's Department of Housing and Real Estate Market Management, said that real estate developers would have to sell units at more reasonable prices in order to recoup their investments, giving consumers greater choices.
Ha suggested that the market would continue to thrive if companies put their capital into social housing and low-cost apartments that the majority of residents could afford.
"Credit will still be granted to more feasible projects. including low- and middle-income housing, for which demand is very high," said Ha.
According to the HCM City Real Estate Association, nearly 4,500 apartments were sold in the third quarter of last year, 80 per cent of which were for middle-income earners, with prices of less than VND20 million per square metre.
Vo suggested the real estate market could be stabilised if investors relied less on commercial bank loans and found other sources of financing. He suggested forwards contracts (Allowing buyers to make sizeable deposits on unfinished units); allowing investors to pledge land use rights as security for loans (A practice currently forbidden by law); and increased foreign investment.
"Foreign investment hasn't been used effectively for a number of reasons, but foreign partners are necessary to raise funds for real estate development," Vo said.
"We should adjust the law to allow investors to access the abundant sources of foreign capital that are out there," he added. "Foreign commercial banks are ready to offer loans [in US dollars] at an annual interest rate of 4-5 per cent.".
Song Ha
vietnamnews
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