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Developers adopt new survival strategies
The State Bank of Viet Nam has loosened its grip on real estate loans recently in a long-awaited move that some industry insiders say may help revive the stagnant market.
The central bank excluded some types of real estate loans from the list of "non-production" loans – a credit category that commercial banks have been specifically ordered to control this year.
As a result, restrictions have been lifted on loans for home repairs, home purchases, and home construction but eligible borrowers are limited to wage earners only. Developers can also apply for bank loans as long as they are developing housing projects for low-income groups or other residential projects that can be put into use by January 1, 2013.
Following the new policy, many banks plan to increase lending to the real estate sector.
However, many real estate developers do not have enough time to wait for low-cost capital sources. Many of them say bank loans are still beyond their reach while their projects struggle to get a move on.
They also say that their loan applications have been rejected by banks for a myriad of reasons.
Some banks have said they have to wait for guidance from the central bank in offering loans to real estate businesses. Some either refuse to lend, or give the excuse that they are restructuring their business debts. Some banks require borrowers to have a stable source of revenue to be eligible for loans.
To survive, many real estate enterprises are trying out various measures to sell their products in order to get back the money for paying old bank loans and continuing incomplete projects.
The Hoang Anh Gia Lai Group, for instance, has recently announced it is likely to cut prices of apartments in some projects by 50 per cent.
Chairman Doan Nguyen Duc said that once prices reach reasonable levels, people would certainly buy. "Low prices play a role in saleability, and can bolster demand in a gloomy market," he said.
Under the HAGL group's plan, bout 2,000 apartments of 60 to 90 square metres will be sold at half their original prices.
Following this trend, many other real estate developers have drawn up plans to wholesale their apartments to investors or cut property prices in order to recover capital and pay back banks debts.
The Quoc Cuong Gia Lai Joint Stock Company has decided to lower prices of apartments at its Quoc Cuong Apartment Complex in Binh Chanh District, and is looking to sell them to the city government for resettlement purposes.
The Hoa Binh Construction and Real Estate Company is seeking partners to transfer its 29,698sq.m Long Thoi residential project in Nha Be District, and the 10,278sq.m Thanh Xuan land lot in District 12. These projects will have prices cut by 10 and 20 per cent.
Some project owners have asked city authorities for permission to divide their apartments into smaller ones that will be more affordable for home seekers.
Meanwhile, several real estate developers have chosen to exchange apartments for building materials. The New Technology Application and Construction Investment Corporation (TECCO) is negotiating such a deal with three building materials suppliers.
Analysts appreciate efforts being taken by developers to sell their products. They say the key attracting customers is to introduce high-quality products at reasonable prices.
Agriculture exports face challenges
Enterprises exporting agricultural, forestry and fishery products will face new difficulties because a new central bank circular limits their ability to access loans in foreign currencies.
On March 8 the State Bank of Viet Nam issued Circular No.03/2012/TT-NHNN on foreign currency lending by domestic credit institutions and foreign bank branches.
Accordingly, from May 2 domestic credit institutions with forex service licence can only extend short, medium and long-term loans in foreign currencies to firms that use the funds for importing goods and services for their production and trading purposes.
This is bound to create a lot of problems for agricultural product exporters who have been using foreign currency loans to do business because the interest rates are much lower than dong loans.
The current interest rate of foreign currency loans is between 6 and 7 per cent per year, while the interest rate on dong loans ranges between 15.5 and 18 per cent per year.
Because of this big gap, several exporters have chosen to borrow loans in foreign currency in order to reduce their financial costs.
The new lending regulation will prevent exporters of seafood, rice, rubber, coffee and cashew from accessing foreign currency loans because they typically buy raw materials in Viet Nam for which payment is made in dong.
Nguyen Tuan Anh, general director of the Ut Xi Seafood Processing Joint Stock Company, said the new foreign currency lending regulation forces exporters like his company to borrow dong loans.
"In the past, although we could borrow just 30 per cent of our working capital needs in foreign currency, it helped us cut costs significantly, "Anh said.
"Now, we have to borrow dong at high interest rates. This would raise our production costs to a much higher level, thus affecting our products' competitiveness over similar products made in Thailand, India and Bangladesh," he said.
A representative of a seafood export company in the southern province of An Giang also revealed that in 2011 his company was able to make profit mainly thanks to US dollar loans.
"The 9 or 10 per cent gap between the interest rates in dong and US dollar loans brought in VND10 billion per month for out company and ensured its maintenance," he said.
The new foreign currency lending regulation would encourage agricultural exporters to import raw materials from abroad to process instead of using domestic products, and therefore it would affect the country's foreign currency resources, he said.
Many economists have said that the new foreign currency lending regulation would impact enterprises in areas prioritised by the Government. They said that the foreign exchange earned by companies exporting agricultural products made with raw materials bought domestically was not used to pay material suppliers. The foreign currency was typically sold to the banks.
This meant that lending foreign currency to agricultural exporters did not affect the country's balance of payment in foreign currencies, while creating conditions for the companies to make profit and sustain themselves.
Gold trading deadline extended
The State Bank's Circular 12/2012/TT-NHNN, effective early last week, extended the deadline for credit institutions to cease mobilising and lending gold until November 25, rather than May 1 as stipulated in a previous circular.
From the new deadline, banks are only allowed to mobilise gold to serve its payment purposes.
The central bank asked credit institutions to build roadmaps to fulfil the requirement and said it would supervise their implementation.
In the meantime, it issued a directive guiding the implementation of regulations on the gold safekeeping service of these institutions.
The State Bank said some institutions were facing potential risks in the past months by offering dividends on gold deposits or mortgaging the metal to borrow money in dong or dollar from other institutions.
It requested these practices be stopped, asking clients to pay fees for the service, and credit institutions to list service charges publicly.
For derivative forms of gold dealing contracts such as futures, options and swap contracts, the central bank said deals were to be made only with its permission.
Pilot scheme to refund VAT
Effective the first of July, international tourists can claim refunds of value added tax that they have paid for purchases made in Viet Nam.
The new scheme, scheduled to last two years until June 30, 2014, will allow visitors to get back up to 85 per cent of the VAT they have paid. The remaining 15 per cent will go to the banks that help process the refund.
Tourists can claim VAT refunds at Tan Son Nhat Airport in HCM City or Noi Bai in Ha Noi.
Local retailers have been encouraged to join the pilot project designed to help them increase sales. A tax-free shopping sign will be displayed at the shops to attract shoppers' attention. Information about businesses joining the scheme will be uploaded by tax and customs authorities on their websites.
The VAT refund plan will be advertised on Viet Nam Airlines flights and other means of tourist transportation. Efforts are on to enable travellers to Viet Nam on board ships or overland routes to benefit from the scheme as well.
Last year, the country welcomed more than 6 million international arrivals. If each visitor spends US$300-500 on average during his or her stay in the country, local businesses will be able to post a turnover of between $1.8-3 billion.
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