Seminar underscores more funding needed to save property market

18 Aug

It will take concerted efforts by the government, the banking system and property developers to revive the capital-starved real estate market, officials and analysts told a recent seminar in Ho Chi Minh City.

The real estate market, which thrived last year, has lost steam this year. Double-digit inflation and the central banks’ tightened monetary policy have pushed many medium and small developers to the edge of bankruptcy due to lack of access to capital.

The current situation may exacerbate the shortage in supplies of properties around the country, according to the seminar last week.

Seminar participants, including officials of the Construction Ministry, representatives of real estate businesses and market experts, called for banks to continue to pour capital into the market.

The government should facilitate developers to attract investments from other short- and long-term sources, especially from portfolio funds, by developing appropriate legal frameworks for such purposes, attendees said.

Cash shortage

The central bank, in line with the government’s policy to subdue double-digit inflation, has increased interest rates and capped the annual credit growth rate at 30 percent. In comparison, loans last year surged 54 percent.

As a result, developers have had to bear loan interest rates of up to 21 percent this year, a steep rise from last year’s 12 percent figure, Deputy Construction Minister Nguyen Tran Nam said. High inflation has also hiked prices of many construction materials and hurt real estate demand.

The double whammy of escalating interest rates and inflation caused construction costs to increase by at least 5-10 percent this year, as many developers had to delay or suspend their projects, Nam said.

Nam, also chairman of the Vietnam Real Estate Association, said the real estate market contributes an estimated VND20 trillion (US$1.2 billion) annually to the exchequer through taxes.

Most property developers, meanwhile, would have to pay their one- or two-year loans by the end of this year, said Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association. The real estate market requires an infusion of capital.

Additional capital channels

Since the central bank cannot loosen its monetary policy anytime soon, developers should strive to “save themselves” first, Nam said.

Tran Kim Chung, an expert from the Ministry of Planning and Investment’s Institute of Strategic Studies, said the real estate market could be revived with the development of medium- and long-term capital channels.

This strategy includes forming markets for real estate bonds and real estate mortgages, and attracting capital from portfolio funds and life insurance companies, he said.

Dinh The Hien, director of the Information Technology and Applied Economics Institute, said the real estate market would still need banks’loans as a shot in the arm to continue operating normally until early 2009.

“During late 2008 and the first quarter of 2009, commercial banks’ capital is still the most feasible capital for the market, helping to fund developers’ projects and people’s housing purchases,” he said.

For a long-term solution, Hien suggested that the government forecast the demand for real estate – namely office buildings, trade centers and hotels – based on which it could estimate necessary capital amounts.

By referencing such a forecast, banks could decide the size of real estate loans based on categories like market demand, construction time and ease of debt retrieval, Hien added.

He suggested that at the present moment, banks should loan to projects that could be completed in the 2009-2010 period. Office building and trade center projects in prime areas should be prioritized. For residential projects, banks should focus on those with unit prices of less than $1,000 (VND16,500,000) per square meter.

Deputy Minister Nam supported the suggestion, saying developers should increase the supply of housing in the price range of VND500 million ($30,000) – VND1 billion ($60,000).

He called for the government to grant overseas Vietnamese the same rights as locals to own houses in Vietnam as a measure to warm up the market.

Current regulations allow some specific groups of overseas Vietnamese to own houses in Vietnam. Around 130 overseas Vietnamese in total could own a house in Vietnam to date, mostly in the vicinity of Ho Chi Minh City.

Nam was also quoted by Tuoi Tre as saying the Construction Ministry has allowed foreign real estate brokers with valid licenses granted by foreign agencies to practice real estate brokerage and appraisal in Vietnam.

Source: Thanhnien News
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