The low purchasing power plus the credit tightening policy have both have put a hard pressure on real estate companies and pushed them to them to the verge of bankruptcy.
Big difficulties make real estate developers shrink
In fact, real estate companies once faced the credit tightening policy in 2008. However, they still could survive the difficulties. Meanwhile, analysts think that the current difficulties are much bigger than that in 2008, which have made many real estate developers financially exhausted.
Le Hoang Chau, Chair of the HCM City Real Estate Association, also said that the challenges faced by real estate companies in 2010 are as twice as bigger than in 2008, and that it is very likely that many of the companies will get bankrupted.
Chau said that the target enterprises have set up for themselves is to survive, not to develop.
“Too many waves have rushed down which have made real estate developers flounder,” Chau said. “The bank loan interest rates have become unbearably high, while the purchasing power is too low”.
In order to boost sales, real estate developers have been trying to run sales promotion programs. They offer flexible payment methods, offer gifts in cash, saving books, or even give gold to buyers. However, the promotion programs do not help much. People do not want to buy houses and apartments at this moment, because they believe that in the gloomy market, the prices would further decrease. Meanwhile, those, who really have the demand, cannot buy now, because they cannot pay the overly high bank loan interest rates.
Brett Ashton, Managing Director of Savills Vietnam, agreed that the current interest rates are now overly high, which is a big challenge to investors. Especially, even if investors accept the high interest rates, they would still find it difficult to access bank loans. Especially, commercial banks have urged real estate developers to pay bank debts, so that they can reduce the outstanding loans to non-production sectors to 16 percent as requested by the State Bank
The laden difficulties can explain why many real estate companies have reported losses or sharp profit falls for the first quarter of the year.
Phat Dat Company, for example, has reported the loss of 14 billion dong for the first three months of the year. Van Phat Hung has reported the modest profit which is just equal to 14 percent of that in the same period of the last year. Can Nha Mo Uoc Investment Company has reported that the post tax profit of the company dropped by 75 percent.
Chau said that many companies have to delay their projects because of the lack of capital. Others have to transfer projects or bargain away in order to get money which allows them to maintain business.
Besides the projects which have been transferred recently, Chuong Duong Company is following necessary procedures to transfer the Thu Duc Apartment project to another partner. After purchasing Phu Gia Hung Apartment project from Ha Thuan Hung Company, Dat Xanh Group has got a project in Thu Thua district in Long An province which has the total area of 20 hectares.
Van Phat Hung Company is planning to sell a part of its land fund and transfer some projects in districts 2 and 9. Most recently, Singaporean CapitalLand, through its subsidiary - CapitaValue Homes Ltd – has purchased 70 percent of the stakes of the project on building 974 apartments in Binh Trung Dong ward from Khang Dien Saigon Company.
Difficulties serve as the opportunities to filter businesses
Though believing that the tightened credit would be a big challenge to many enterprises, experts think that this is now the golden chance for the market to “filter enterprises”: the enterprises which have short term investment strategies and weak experience and financial capability will be killed, while only the strongest can survive.
Nguyen Nguyen Thai, a senior executive of CB Richard Ellis, a real estate service provider, said that there must not be a real estate market, in which all can be investors. This must be the “playing field” of the enterprises which have experiences and financial capabilities.
Brett Ashton from Savills Vietnam also said that there always exist opportunities. In the difficulties, many companies would get exhausted, while many others would prosper thanks to low cost projects
According to the HCM City Construction Department, there are some 6000 real estate enterprises, 1 percent of which are foreign invested.