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Property companies coping with VND movements

Released at: 11:53, 21/08/2015

Property companies coping with VND movements

Real estate not alone in coming to terms with changing exchange rates.

by Quynh Nguyen-Kieu Chau

After the State Bank of Vietnam (SBV) decided to increase the exchange rate band from +/-2 per cent to +/- 3 per cent on August 19 the price of USD at banks in Vietnam increased to VND22,230 (buying) and VND22,440 (selling). The move has put pressure on the VND and may also affect interest rates on loans in the currency.

It will have a negative impact on real estate companies because rising interest rates would increase their financial expenses and reduce profitability. Another issue is that many construction materials real estate companies import will become more expensive when the dollar rises.

According to Ms. Vo Thi Diu Hien, Deputy General Director of the Saigon Thuong Tin Real Estate JSC (Sacomreal), real estate companies should consider opening for sale as soon as possible to take advantage of cash flows from the financial market, welcome investment flows from potential foreign investors, and introduce preferential rates to customers and companies prior to any interest rate increase.

She also said that companies should balance the structure of the materials used in construction by increasing the use of domestic materials to cut costs and be more competitive.

When China suddenly devalued the Renminbi to boost exports a number of countries around the world responded by devaluing their own currency. The move sparked fears of a currency war and created a degree of panic in stock markets. Vietnam’s stock market wasn’t left unscathed, with the index falling.

Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association, believes that real estate will remain a safe investment channel compared to securities and gold. Despite the "ghost month" (lunar July, solar August this year, in which local investors are reluctant to purchase or invest in new projects), some projects have still seen high sales prior to opening.

For example, Sacomreal said last Sunday it will launch 238 villas at the Jamona Home Resort in Ho Chi Minh City’s Thu Duc district at prices starting from VND1.9 billion ($85,500). In the apartment segment, the company will also launch 200 luxury apartments at the Jamona Apartment project in District 7 sooner than expected.

Investors opening for sale at the moment can benefit from two separate factors. On the one hand they may attract cash being withdrawn from the stock market for property investments. On the other hand they can take advantage of foreigners being allowed to purchase housing under the amended Law on Housing, which took effect on July 1. Exchange rate moves will also be favorable for foreign homebuyers.

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