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Changing tack
Real estate developers and investors in Ho Chi Minh City have had to restructure their investment strategies amid a flagging property market.
Property sales have been falling because of high loan interest rates and a decline in customer confidence, especially in the high-end segment. Ho Chi Minh City’s property market has clearly seen a reduction in investor interest among a large number of secondary investors in recent months. They are tending to sell their apartments to preserve their capital, with many accepting that a profit can no longer be made.
In recent months a number of real estate investors have offered property via a range of channels, in particular on the internet. Ms. Lan Huong, an interested buyer from Tan Binh district in Ho Chi Minh City, said she receives many advertising emails relating to property. Sales are being introduced in a number of ways, she said, with the majority being in the high-end apartment segment.
Mr Nguyen Van Linh, an investor who owns two apartments in District 2 in Ho Chi Minh City purchased last year, has sold both in the last two months without making a profit. “With the market in such a gloomy state it’s hard to see any good signs for 2011,” he said. Of the same mind as Mr. Linh, Ms. Thu Oanh is now trying to sell her apartments in District 9. “At the very least I hope to sell at the price I paid for them,” she said. Mr Linh and Ms. Oanh are two of many secondary investors preferring to wait and see before investing further in property.
While sale and purchase transaction are slow, many developers have had to delay construction of their housing projects. Between 60-70 per cent of all projects have now been delayed. According to Mr Le Hoang Chau, Chairman of Ho Chi Minh City Real Estate Association (HoREA), there are no specific figures about the number of property developers who have delayed their projects. But it is has become very common.
Many companies have had to transfer their projects to other partners to secure the capital required to continue developing existing projects and ride through the storm. “Transferring property projects is actually a normal activity in the market,” Mr Chau added.
Last year there were only a couple of M&A deals in real estate projects in Ho Chi Minh City, but this year there are many more. Since the beginning of the year the property market has seen a series of major M&A deals, as evidenced by the Thien Minh Tourism Company’s acquisition of a chain of six hotels and resorts from Hong Kong’s EEM Victoria valued at $45 million, and Vinaland’s transfer of all shares in a housing development project to a Vietnamese partner, worth some $10.9 million.
Chuong Duong JSC is also negotiating with a foreign partner to transfer its Golden Land project in Thu Duc district, which has total estimated investment of VND880 billion ($42.7 million). Khang An Real Estate Investment JSC, meanwhile, is completing procedures to transfer its Tan Tao A residential project in Ho Chi Minh City.
After taking over the Ha Thuan Hung Company to acquire the Phu Gia Hung apartment project in Ho Go Vap district, the Dat Xanh Real Estate Services Corporation has received a transfer from the Five-Star Group for a 20-hectare project in the Mekong Delta’s Long An province.
In a recent report, the Van Phat Hung Corporation said it would consider transferring some of its projects in Ho Chi Minh City. Most recently, CapitaValue Homes, a subsidiary of Singaporean property developer CapitaLand, bought an apartment project from Khang Dien Sai Gon Real Estate Co via a joint venture agreement, in which CapitaValue Homes holds a 70 per cent stake. The $70-million project, in Binh Trung Dong ward in District 2, has 974 apartments targeting middle-income earners.
Mr. Dang Xuan Minh, Director of AVM Vietnam, an M&A research and advisory company, told the M&A Vietnam 2011 forum last month that the increase in M&A deals in the real estate sector is attributed to the blossoming of the market, which can be seen in rising property prices and a considerable amount of capital flowing into the market. M&A is an effective tool to promote revenue growth and restructuring and screen the most competent investors to carry out the project, he said.
According to Mr. Troy Griffiths from Savills Vietnam, there is a need to quickly establish capital mobilisation funds by investors who boast a large number of land reserves but face difficulties in accessing capital, resulting in the rising number of M&A deals.
Mr. Chau said that property enterprises selling projects can be divided into two types. The first are those with difficulties in business activities due to the economic crisis and the property decline of recent years or those who are now focusing on their core business and shedding their property investments. The second are those who plan to sell projects after completing construction.
In the opinion of one investor, although the number of projects is huge the rate of successful deals is low due to agreements between buyers and sellers being made without any evaluation from professional organisations.
Many property experts and developers believe the market will remain bleak for the remainder of the year and may not recover before the end of 2012. Many of Ho Chi Minh City’s enterprises are of small for medium scale, and a number could collapse this year.
But this represents a major opportunity for the market to “filter out enterprises”, according to Mr. Nguyen Van Duc, Deputy Director of Dat Lanh Real Estate Company. Enterprises with short-term investment strategies and lacking experience and financial capacity will face bankruptcy, and only the strongest will survive. Mr. Nguyen Nguyen Thai, a senior executive with real estate service provider CB Richard Ellis, is of a similar mind. The “playing field” must consist of enterprises that have experience and financial capacity, he was quoted as saying.
Many property enterprises must restructure their business activities and redistribute their funds and investment portfolios. “Their business goal this year is to survive, not to grow,” Mr. Duc said. In trying to secure the funds to repay bank loans, most developers have had to offer incentives to entice homebuyers.
According to Mr. Lam Van Chuc, President and CEO of Phucduc Group, instead of discounting the sale prices they have offered potential buyers flexible payment systems, interest rate support, discounts for cash, lucky draws for motor cars and motorbikes, and even gold.
HoREA has asked the government to provide a schedule on adjusting monetary policy to reduce interest rates. With current interest rates, no real estate business can borrow at this point in time. Bank loans have been a regular financial channel and are secure for enterprises. “With the current interest rate policy, many more people prefer not to invest,” Mr Chau said. Support in completing procedures is another recommendation Mr Chuc makes, to see the transaction market improve in the future.
From a long-term perspective, Mr. Chau said that it is time that the government and real estate enterprises consider profit sharing in the process of implementing projects, such as adjustments to land tax levels, construction costs, etc. The market will be more transparent, consumers will have the opportunity to own property at its true value and the development of enterprises will be more sustainable.
Do Huong
vneconomy
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