Jan 3, 2012

Vietnam - Price cuts fail to enliven property market



Vietnam’s real estate market is in a funk so bad that several drops in prices have not brought any cheer to buyers.

According to the Ho Chi Minh City Real Estate Association, with home prices falling continuously, many buyers are adopting a wait-and-see approach, hoping prices would drop further.

This is a “dangerous” situation for the real estate market, signaling an even more difficult year ahead for developers, the association said.

Some companies may resort to lowering prices to boost sales before it’s too late, it added.

Nguyen Van Duc, the association’s vice chairman, said not a single real estate firm is earning profit at this point. Developers have no choice but to accept losses and try to survive these times, he said.

But the association warned that cutting prices is not an easy task.

Chairman Le Hoang Chau said home prices in Vietnam have been high because of high construction and borrowing costs as well as the large amount of money developers have to spend on land clearance and land use rights.

Then, it also takes a long time to go through all the administrative procedures, causing the total cost to surge further, he said.

Analysts say Vietnam’s property market has gone through one of its worst years. Some say the credit squeeze imposed on the sector throughout most of 2011 has left developers and homebuyers struggling financially. Others blame the ongoing slump on an oversupply of luxury and overpriced products that failed to meet the real demand of most Vietnamese buyers.

The housing markets in both Hanoi and HCMC will continue to see price falls in 2012, according to global property consultant Knight Frank. Residential prices in the two Vietnamese cities will fall by 5 to 10 percent in 2012, after an estimated drop of 10-20 percent in 2011, the company said in a global forecast earlier this month.

Not only developers but investors who try to earn profit from buying and reselling properties have been left high and dry by the market downturn.

An investor in Hanoi who wished to remain unnamed said she had paid 80 percent of a luxury apartment but she could not find money to pay the rest.

“I was stuck. I had to sell it at VND20 million per square meter even though I paid VND20.5 million in the first place,” she told Thanh Nien.

Many other investors, unable to access bank loans, faced the same situation. But even with price cuts of recent months, buyers are still shying away.

Pham Thanh Hung, deputy general director of Century Group, a real estate services provider, said there were many reasons why people were deciding to sell their properties at very low prices, including lack of confidence in the market and high taxes. But most of all, it was because they no longer see real estate as a lucrative investment channel and want to consider other options, he said.

Real estate prices can continue to fall, Hung said, adding that prices will reach a level that is more reasonable to homebuyers.

The director of a major bank in Hanoi said his bank will sharply reduce credit to real estate and focus on export and production sectors.

“If we continue to offer real estate loans, the procedures will be tightened up and interest rates will be higher,” he said. “We need to change our business strategy because it will be tough for the property market in 2012.”

A senior executive at Agribank also believed the real estate market would not be able to pick up any time soon.

“The market can start heating up only when the economy expands at a fast pace. But now the government has decided to go with a reasonable GDP growth, if not a lower growth than many past years, in order to restore economic stability,” he said.

“As a result, it’s unlikely the real estate market can recover in 2012,” he told Thanh Nien.

By Anh Vu - Mai Vong, Thanh Nien News (The story can be found in the December 30th issue of our print edition, Thanh Nien Weekly)



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