Vietnam - A puncture in the bubble

The news sends shock waves throughout the property market when PetroVietnam Land Joint-stock Company makes a bold decision to slash the price of its condos at PetroVietnam Landmark project in HCMC’s District 2 by as much as one-third.

The earthquake, as the price discount is referred to, is followed instantly by a big tremor of no less devastating impact for other property developers and traders when Mekong Joint-stock Company marks down its condos in a project in the city’s Nha Be District by as much as 20%.

The steps taken by these two apartment distributors are seen triggering a widespread price-cutting movement on the local market. The property bubble, after staying under pressure for years, has become deflated.

The sharp discounts prompt outcries among many housing developers, who fear that not only themselves but also their customers will incur losses.

Doan Chi Thanh, CEO of Hoang Anh Saigon says the discounts are the first shock to the realty market, and such move will pile up pressure on many other projects, according to Vnexpress.

In fact, the price discounts announced by the two aforesaid companies are just the floating tip of the iceberg, since housing prices have for years taken the downtrend. Vnexpress gives a long list of housing projects whose prices have fallen, or whose investors have applied huge promotions to attract buyers.

CEO Group, for instance, promises to give a Toyota Corolla Altis worth over VND700 million for the first ten customers buying houses at the Sunny Garden project in Hanoi City, says Vnexpress. Or in a condo project in HCMC’s Thu Duc District, the developer offers a price of VND13-14 million a square meters alongside other incentives, compared with the price of VND17 million last year.

The difference between earlier price discounts and the current ones, according to experts, lie in the level of reduction, as the market has never seen a fall as steep as 35%. But the sharp discounts are seen inevitable given the near-frozen property market, says Nguoi Lao Dong.

Nguyen Xuan Chau, CEO of Mega Real Estate Company, is quoted as saying on the paper that “the investors proactively accept the low price because they want to optimize the cash flow. If they wait until next year in the hope the market will warm up again, they still cannot earn any more given the high interest rate now.”

Seconding the view, Pham Thanh Hung of Cen Group says investors have to offload their products as soon as possible given the dreary outlook on the property market. He comments on Vnexpress that many cash-strapped investors have to make use of all tactics and all tricks to sell out their products. “Those project owners who can run fast to offload their housing products will reach the finish line earlier. The cut-loss approach is the safest way for investors given the current gloomy market conditions now,” Hung explains.

The sharp discounts announced by PetroVietnam Land Joint-stock Company and Mekong Joint-stock Company may have sent speculators or secondary investors deep into the red, but other experts say developers still remain unscathed.

Dang Hung Vo, an outspoken expert in the industry, says the property bubble is getting deflated but it remains far from bursting as housing prices are only returning to the appropriate level, according to Lao Dong.

The discounts, says Vo, are just a normal phenomenon after prices have skyrocketed in previous years. “Even if prices tumble by 30% market-wide, housing developers will only have their profits shrinking, not plunging into losses,” says Vo.

Vo, who is also former deputy minister of natural resources and environment, comments that the bubble has become inflated for a long time, so it is certain that many more enterprises will have to cut down prices in the coming time. Such a movement will help the property market become more stable in the future and more beneficial for genuine homebuyers.

In a harsher tone, Pham Sy Liem of the Vietnam Construction Association says investors should have reduced their prices for long rather than now, and predicts that current prices may be halved next year, according to Lao Dong.

“Investors with sufficient experiences should have done this job (of cutting prices) for long. In my opinions, the discounts are just the beginning. In the rest of this year and next year as well, many more property developers will have to cut prices if they want to survive the tough time,” Liem predicts.

Liem says the recent discounts may reflect bankruptcies of speculators and secondary investors, but early next year may witness the bankruptcies of developers.

In its decision to lower prices at PetroVietnam Landmark, the owner says it has to make the decision due to the huge debt it owns to a local bank. As the Government has determined to restructure the banking industry, creditors have to force its customers to repay debts. And, like a puncture in the bubble, the banking restructuring gives heavily-indebted property investors no other choice, but to lower prices as the final solution.

Son Nguyen - The Saigon Times Daily

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