The Vietnamese real estate market has undoubtedly suffered over the last four years, and while many challenges still lie ahead, there now appears a belief that government action along with newly introduced laws have encouraged the opening of this market to those purchasing, investors and developers.
One positive way this has been observed is by the amount of potential homebuyers attending recent project launches.
Those participating in a recent Vietnam Real Estate Association seminar in Ho Chi Minh City were upbeat regarding the substantial amounts of investment targeting their sector.
This positive message was backed by Nguyen Tran Nam, the Deputy Minister of Construction. He is on record as stating that a clear recovery in the country’s real estate market has been observed since last year. A definite pointer was the constantly escalating number of quarterly transactions during the last two years. These eight separate quarters have seen rise upon rise.
Such increases have been a huge step in the right direction in terms of reducing housing inventories. This has been a major concern for several years now.
The Deputy Minister also offered two other positive reasons. Increased finance from the banking sector has been made available to real estate, and something that was touched on at the beginning of this piece; the VND30 trillion ($1.4 billion) Government-backed stimulus package which has already seen levels of disbursement that are extremely positive.
So it was positive that January of this year saw the distribution of these funds exceed VND10 trillion ($476 million). The joint initiative of 15 commercial banks coupled with supportive government regulations had secured mortgages for over 12,000 people.
The Deputy Minister confirmed that further initiatives to breathe yet more life into the real estate market had resulted in the State Bank of Vietnam, ministries and other bodies coordinating the implementation of a further stimulus package.
This latest package is even larger than that just mentioned. Its value is VND50 trillion ($2.38 billion).
Significantly this new plan is aimed squarely at subsidising the important sector of commercial housing. This is rather than targeting the many in need from the low-income housing sector as per the previous initiative.
He also confirmed that from July 2015, new laws and related regulations would be put into place in terms of Real Estate Business and Housing Laws that would aid the market.
The consensus of seminar participants was that significant progress towards recovery had been achieved by the end of last year, but there were also words of caution regarding excessive optimism.
The Thu Duc House Company General Director, Le Chi Hieu cautioned that the continued development of Vietnam’s real estate market was still very much dependent on some key factors:
He reminded everyone of the wide scale attention given by the government towards the real estate sector last year, as well as important factors such as resolving the problem of large housing inventories, the major issue of bad debt and the sizeable task of restructuring the economy.
He also made it clear that many developers had been the root cause for the excessive over-supply of property and the consequent large stockpiles witnessed in the past.
This was because they had squandered finance on the construction of so-called luxury developments where little interest was shown, and had blatantly lacked focus on segments of the market that had very strong demands for housing, such as those in the low-income bracket.
He also warned of the ruthless selectivity of the real estate market. Those developers who lacked real capital, had poor management skills and went about their business in an unprofessional manner would be purged.
Interesting observations were made by Doctor Le Xuan Nghia who cautioned on three factors which would have a telling effect on the country’s real estate market. These were: Interest Rates, how Global financial markets set exchange rates and the perennial issue of Global oil prices.
He also pointed out something that would be taken into account, and affect this market with regard to Mergers and Acquisitions. That was the country’s remaining bad debt problems.
There was also a caution that the credit market was closely aligned with real estate market development and here was the conundrum. Already planned is the government’s large issue of bonds, both mid and long term.
The Commercial Banks are holding large stocks of government bonds. If there is a need for these banks to increase their credit, the most likely course is that government bonds would need to be released.
The effects of this could very possibly be an increase in the bank’s interest rates. Such an increase could cause great financial problems for real estate developers, many of whom will have borrowed substantial amounts in their attempt to stabilise and re-grow their company after suffering long periods of heavy loss.
His final comment was to urge the government to consider these issues carefully and to make contingency plans which would allow interest rates to be eased down.
If not, the possibility of not just the real estate market, but the wider economy as a whole could be affected.