Rescuing the Real Estate Market: Stuck with Output

20 May
Realizing that real estate enterprises are facing a lot of difficulties when their products are frozen due to the lack of consumers for months, banks recently have started to “save” these enterprises with credit support packages. According to experts, this move is also a solution for banks to save themselves, when many of their debts to the real estate sector are overdue.
Finding ways to unfreeze capital flows
The most impressive comes from the Bank for Investment and Development of Vietnam (BIDV) with the model “Linkage of the 4” aiming to save the real estate market. Accordingly, in May 2012, BIDV will continue its capital support package and payment guarantee for the 4: project owner, contractor and supplier of building materials, as well as the bank. This solution will ensure payment among project owner, contractor and supplier of building materials in order to provide products as soon as possible. BIDV will launch the support package in the two largest markets, Hanoi and Ho Chi Minh City.
 
BIDV’s move is hoped to stimulate consumer demand, as well as make a precedent for other banks to follow. Before the model “Linkage of the 4”, BIDV was one of the first banks to launch credit support package with the value of VND4,000 billion, lending money to those who buy houses in projects financed by BIDV, at an interest rate much lower than other banks (16 percent), and loan limit up to 85 percent of the house’s value. Although the package was launched only in Hanoi and Ho Chi Minh City, it is easy to understand that bank and project owners could apply the rescue policy only where most products are in stock.
 
According to Mr Tran Bac Ha, Chairman of BIDV, when launching the policy of reducing interest rate for home loans, BIDV lost VND 1,200 billion – VND 1,500 billion. This was a risky step in the context of most real estate enterprises suffering difficulties. According to statistics, many banks such as Vietcombank, Eximbank, Sacombank, and Agribank still have capital stuck in real estate, and they have not had a turning point regarding credit policies. Consequently, remarkable troubles between banks and real estate enterprises – banks’ borrowers will potentially develop.
 
Output is still stuck
The bankruptcy of real estate enterprises is certainly the most undesirable thing for banks at this time; however, how to save these enterprises from bankruptcy does not depend only on banks. Whether banks can re-trace loans, freeze loans or keep pumping capital for project owners to complete their projects, the most important factor, the output for products, is not solved. Enterprises are short of necessary capital to operate, products are not moving, and consequently banks also stand to lose considerable income. If this situation keeps going on for a long time, at a certain point, banks will not be able to support enterprises and will have to find ways to save themselves by solving loan-secured properties. At that time, not only enterprises will go bankrupt, but also banks probably will go bust in line.
 
While many real estate enterprises suffer heavy losses, some are determined not to lower prices of their products. It was believed that when Hoang Anh Gia Lai decided to discount 50 percent of their apartments, the real estate market would be in a sharp price discount trend, however recently project owners only lower price as a promotion. SC5 Company even declared that they would never dump prices of their products.
 
The line between survival and death is clearly visible. The terms of maturity, renewal and re-trace of loans have passed for a year, but product consumption ratio of enterprises remains almost equal to 0. If the situation remains the same to the end of 2012, many real estate enterprises will have to leave the market.
 
According to many real estate investors, policies have gradually loosened, but market liquidity has not improved, while interest must be repaid, the only chance for real estate enterprises is to wait for the city resettlement program policy of buying apartments.
 
Reported by Luong Tuan | VCCI News
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