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VNRE - The Vietnam’s real estate market is now in the toughest time since 2008, a sharp drop in both supply and demand. To date, many property specialists believed that the Vietnamese property market is getting nearer to its real value.

Selling price equal to cost price

In the first seven months of this year, the Vietnamese real estate market slid into a very difficult situation as input prices (including site clearance costs, material costs, etc.) leaped and lending interest rates were exorbitant. They failed to sell products, faced financial imbalance, and lacked capital for their projects. Thus, many property companies only hoped to live through this hard time.

As bank loans for the property market are tightly locked, property businesses turn almost frozen. This is the base for real estate prices to return to rational rate. Selling prices nearly equate cost prices because investors have to recover their investment capital in a slowing market. The stagnation of the property market is also caused by high interest rates, tax and capital policies, and especially the loss of investor confidence.

A survey by property consulting firm CBRE Vietnam showed that real estate prices in Ho Chi Minh City - the largest economic centre in Vietnam - has fallen sharply from early 2011 until now. Specifically, in super-luxury apartment segment, the asking price averaged only VND 84.64 million per square metre, down 1.35 percent from the end of 2010. In high-grade apartment segment, the price fell to just VND30.36 million per square metre, down 17.27 percent. In popular segment, selling price rose 16.7 percent to VND22.46 million per square metre. Currently, the demand for low- and medium-priced apartments is growing up while the interest for high-end condos is dropping. Homebuyers prefer apartments with a living area of 80 - 90 square metres, sold at VND15.6 - 19.5 million per square metre (medium-end segment) or a living area of 60 - 70 square metres, priced at VND10.2 - 14.6 million per square metre (low-end segment).

This is now the buyer’s market where buyers have more product options, more flexible payment conditions, and more reasonable prices. Some real estate projects allow buyers to settle payments in 44 tranches.

Unfocused investment is not good

The Ho Chi Minh City Real Estate Association (Horea) said many property companies are forced to restructure, adjust investment structure, delay or break the progress of investment projects, cut staff, and apply many sales promotion programmes like lowering selling prices, increasing discounts and commissions, supporting borrowing interests for buyers, and other incentives. Many investment projects had to change investors.

For the time being, the capital source for the real estate market is a “life or death” problem. Deputy Construction Minister Nguyen Tran Nam warned that real estate companies should save themselves first. They should mobilise capital from the public by directly selling project assets (the raised fund is capped at 20 percent of capital registered for the project). They can also join hands with other partners, either domestic or foreign firms, to seek new capital sources. In the current difficult situation, unfocused is not a good option. They should focus on key projects to boost liquidity. They should shift their investment into more affordable housing projects.

At the company level, Mr Nguyen Van Duc, Director of Dat Lanh Co., Ltd, said real estate companies can boost the demand by lowering prices and economising costs for cheaper products. They can build smaller apartments with an individual area of 50 - 70 square metres, or even 20 - 40 square metres, because their prices are more affordable for a majority of Vietnamese people.

At the State level, according to industry experts, Vietnam needs to increase capital for the real estate market. In particular, it should build a legal corridor for the formation of a secondary mortgage market (re-mortgage). It should also soon issue specific regulations on nonbanking financial institutions like real estate trust funds, housing savings fund. It also needs to have more concrete policies and mechanisms for the development of affordable and social housing projects to boost the supply and stabilise socioeconomic life.

Reported by Luong Tuan | VCCI News

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For lease Botany said... August 26, 2011 at 7:53 AM

Its tough time for Vietnam Real Estate, with the economic changes that theyre facing. I wonder how it would go in the next days.