Vietnam - Real estate firms would die soon in the frozen market - Part3

VietNamNet Bridge – The national economy has witnessed the hot growth in recent years, partially because of the huge investments by the enterprises which are infected with many diseases. What would happen?

Part 1: Businesses’ production depending on bank loans
Part 2: Businesses rush to follow multi-field business model

The common characteristic of all the enterprises which make investments in multi business fields is that they all have injected in the real estate sector.

Some years ago, the real estate sector was considered the most lucrative business field which could bring the profits of hundreds of percents. This explained why all businesses tried to pour their capital into the real estate market, where the prices escalated every day.

However, things have become quite different. Since the real estate market has hibernated, apartments and houses have been left unsold; the investors’ capital has been “buried” under the property projects. Though the real estate project developers have tried to boost sales by offering big price discounts, the sales still have been going very slowly, because the land in Vietnam is still believed to be the most expensive in the world.

“I believe that most of the real estate firms would go bankrupt in two years,” said Nguyen Nam Son, Managing Director of VCP fund (Vietnam Capital Partners).

Amid the weak demand, real estate developers have to delay the implementation of their huge projects, including the Saigon Residences, Saigon One – M&C and New Pearl in HCM City.

Not only the housing market, but the office market has also become gloomy. Over the last two years, the supply of offices for lease has increased by 30 percent a year. It is estimated that 2 million square meter of offices for rent would be available by 2014, while the unoccupied rate would be over 40 percent. The reports released by the real estate service providers have also pointed out that the office leasing fee has been decreasing continuously for the last 11 quarters.

Marc Townsend, a senior executive of CBRE Vietnam, thinks that the Vietnamese market would not be able to recovery quickly, saying that it would take at least six months to see the market recover, from the day the inflation and bank loan interest rate decrease to below 10 percent.

Nguyen Thi Mai Thanh, General Director of the Refrigeration Engineering Enterprise REE, said that real estate investors need to have deep knowledge about the sector. Meanwhile, every one, every business, encouraged by easy conditions for borrowing money, rushed to inject money in the sector, even though they did not have enough experiences and knowledge, thus leading to the current bad situation.

Analysts say the ratio of debts on stockholder equity of real estate firms in Vietnam has climbed to 120 percent, far exceeding the average level of 45 percent of the regional enterprises.

Meanwhile, the ratio of the debt on the pretax profit and loan interests of some real estate enterprises, including Phat Dat, Sacomreal, Quoc Cuong Gia Lai or Kinh Bac Investment Corporations, has reached 10. In principle, it would be dangerous if the ratio reaches 6.

Therefore, the enterprises, which mistakenly poured capital into the real estate sector, have been hurrying to get out of the market.

The executive from CBRE has noted that in order to clear the inventories, real estate developed would have to bargain products away. Meanwhile, Son believes that the price needs to be cut down by 50 percent more to be equal to the average price levels in Asian countries.

It is highly possible that the real estate market would only recover after five years, while the upcoming 2 years would be the toughest period for the investor.

Compiled by C. V

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