No area in Vietnam feels economic pain more acutely than the real estate sector, where housing prices have declined to “dream” levels but buyers still shake their heads because they have lost confidence.
Vietnam’s property market slowed to a halt in late 2008 because of the global economic crisis but improved at the end of the following year thanks to the government’s US$8-billion stimulus package.
The sector slowed again in mid-2011 and remains frozen due to skyrocketing lending interest rates that have reached 18-20% per year and low demand and purchasing power.
Transactions are scarce and many developments stand unfinished in big cities because of capital shortages.
It’s a far cry from the “golden era” of early 2008, when the number of buyers registering to buy houses in some cases exceeded the number of units sold by seven to 10 times.
Housing prices have declined substantially in all segments, by up to 30-50% in many projects in Hanoi and Ho Chi Minh City. Transactions remain modest despite promotions such as furniture, cars or low-interest loans.
Hoang Anh Gia Lai Co, a large domestic developer, cut prices of apartments of a well-located project in District 7 of HCM City by 30-40% compared to other projects in the same area, averaging around 20 million dong (29,500 baht) per square metre.
Another developer in Hanoi offered a shocking price of just 10 million dong (14,750 baht) per square metre, even lower than for low-income apartments, at a building in the capital.
Now prices of many apartments in Hanoi and HCM City are quoted below 20 million dong per square metre, down 18% from the same period last year.
“No one can save the real estate market now. To survive, there’s no way but to lower prices,” said Doan Nguyen Duc, the chairman of Hoang Anh Gia Lai Co.
Duc said there were no organisations with the financial capacity strong enough to save property companies at this time and companies must save themselves first because the government is also in difficulty.
The property market boom of the past three years has pushed up outstanding loans for real estate projects to very risky levels, totalling 348 trillion dong (510 billion baht) at the end of last year. Of the total, bad debt amounted to 16.1% or 56 trillion dong, according to the National Financial Supervisory Committee.
Huynh Phuoc Nghia, head of the real estate market research division of Global Integration Business Consultants, said the property market needed government intervention but there would be no large-scale rescue.
“To avoid damage to the economy and society, the government will definitely prepare careful solutions. Likely, the government will concentrate on output for the low-cost housing segment,” he said.
Most market insiders attribute the lacklustre market now to the price fever in the past which created a misleading impression of demand and liquidity, and now supply exceeds demand.
Meanwhile, investors focused too heavily on the medium- and high-end segments which few people could afford.
According to the General Statistics Office, total apartment inventory in Hanoi and HCM City reached around 60,000 units, leading to a capital loss of 140 trillion dong based on an average price of 2 billion dong (2.95 million baht) per apartment.
New supply continues to be released while price declines have been observed in both primary and secondary markets in the third quarter.
Apartments sold in Hanoi were mostly units at lower price ranges (30,000 per square metre and below) and small unit sizes (50-70 sq m), according to CBRE Vietnam.
End users are now the main buyers while the economic downturn has killed off secondary investors or speculators.
Property services companies all see high demand for apartments below 1 billion dong, but while cash is available (it’s said that Vietnamese residents hold more than 400 tonnes of gold), it does not flow into real estate. A wait-and-see attitude prevails among potential buyers.
“Demand remains thin, affected by consumers’ increasing concern over the economy, which induces them to save rather than to invest,” Richard Leech, executive director of CBRE Vietnam, wrote in a report.
The economy had overtaken job security to become the top concern to Vietnamese consumers and this concern has led to their tendency to save 15% of their income while investing only 1%, which limits funds available for real estate purchases, Leech said.
A recent survey by the website VnExpress also revealed that 84% out of 8,300 respondents think this is not the right time to buy a house as they expect prices to decline further.
At the same time, low confidence has made potential buyers more alert.
A lot of lawsuits have been filed this year in Hanoi because many project investors could not finish their developments on schedule, causing huge capital losses for customers.
Many experts say buyers are now paying more attention to the risks of buying unfinished projects associated with cheap prices. Instead of buying cheap apartments without knowing the delivery time, end users are willing to pay higher prices to buy finished products in order to avoid trouble that could force them to sue developers later.
Though lending to the property sector has been reduced substantially since the beginning of this year, soaring interest rates have driven many companies to the edge of bankruptcy while delaying construction progress of numerous projects.
In HCM City, almost 900 of more than 1,100 property projects are unfinished because of financial problems.
This has also created fertile ground for mergers and acquisitions (M&A) in the first eight months of this year. A lack of capital has forced many investors to transfer part or all of their projects to stronger ones. This trend is forecast to continue throughout next year when the economy will continue to be difficult.
According to the real estate firm Savills Vietnam, well-heeled foreign investors are starting to look for opportunities in Vietnam as they think now is a favourable time to buy attractive projects from financially weak companies.
The real estate market is expected to rebound and regain some consumer confidence from the end of this year due to the effects of the government’s credit policies for the property market.
“However, there will not be any significant boom in the next few months given the bank loans for property projects will still be limited and dependent on the quality of projects and investors of these projects,” said Tran Kim Chung, head of policy research with the Central Institute of Economic Management.