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To the rescue

Released at: 03:54, 02/07/2014

To the rescue

Real estate credit packages and greater efforts by authorities promise to address the woes facing Vietnam's real estate market.

by Hoang Thu

With many developers continuing to struggle with a lack of capital for project development and market confidence remaining volatile, real estate stimulus policies announced recently as well as the government’s VND30,000 billion ($1.42 billion) credit support package provide hope for developers. According to analysts the support assists developers and contractors to obtain the funds needed to complete their projects at a lower cost. Bank lending has failed to satisfy demand, making these loan packages attractive with a resultant increase in liquidity.

The Vietnam Construction Bank (VNCB) and the Thien Thanh Group officially announced a new credit package totalling VND50,000 billion ($2.38 billion) on March 25, stemming from cooperation between four parties: building material suppliers, banks, contractors, and developers, in order to create more capital channels for real estate enterprises. Four other large banks - BIDV, Agribank, Vietcombank and Vietinbank - are also involved in the package. “We do not expect the package to restructure the country’s property market but it may reverse the market’s stagnancy and create new credit flows,” said Mr Phan Thanh Mai, General Director of VNCB, adding that real estate inventories, excluding building material inventories, now amount to VND92,000 billion ($4.38 billion).

Another programme worth around VND70,000 billion ($3.3 billion) will connect investors, contractors and suppliers in construction projects and create conditions for them to cut costs and lower their prices to spur sales, according to Mr Nguyen Viet Manh, head of the lending department at the State Bank of Vietnam. With this package set to be put into place shortly, VND120,000 billion ($5.7 billion) will become available for the market. “When these credit programmes are effectively deployed they will promote investment, construction and business activities in the real estate market and hopefully reduce the difficulties facing developers,” said Mr Stephen Wyatt, Country Head of JLL. Positive results, however, are subject to the credit packages being easily accessible, without strict lending criteria and with attractive interest rates.

There have been numerous packages implemented already to varying degrees of success. “This is a very difficult area for policy makers to contemplate,” said Mr Troy Griffiths, Deputy Managing Director of Savills Vietnam. This is the first time Vietnam has had stable macro-economic conditions on the back of strong and successful monetary policy. Ambitious reforms in the banking sector and the strong influence of State-owned enterprises (SOEs) make it difficult to forecast the potential success of any new package. This is a common issue as governments try to best tackle the quickly changing global environment. “Importantly, any policy that helps shorten cycles and delivers additional stability to the economy will be valuable,” Mr Giffiths said.

Banks now faced with bad debts must set stricter requirements on lending, Mr Dominic Mellor, country economist for ADB Vietnam, wrote in ADB’s Asian Development Outlook 2014 report released in April. Typically, it’s real estate developers failing to meet the necessary requirements rather than banks being reluctant or unable to lend. “This is the main cause of the stagnant credit situation in general and for the real estate doldrums,” he wrote. “The target and content of the new VND50,000 billion ($2.38 billion) credit package is very ambitious, and to disburse the VND30,000 billion ($1.42 million) package quickly in a short time is very challenging.”

One of the government’s most significant moves has been the establishment of the Vietnam Asset Management Company (VAMC) to handle bad debts. In the first quarter of this year VAMC bought VND3,929 billion ($190.4 million) worth of non-performing loans (NPLs) from credit institutions. Since its inception it has purchased a total of some VND42,829 billion ($2.03 billion) from nearly 40 credit institutions. The total value of special bonds issued by VAMC now stands at VND35,448 billion ($1.69 billion). According to the company it will buy a total of VND70,000 billion ($3.3 billion) worth of bad debts this year. It currently continues to focus on reviewing and classifying debts and coordinating with credit institutions on how to best address the situation. According to analysts, if VAMC is willing to offload these debts at current market value, it would have a huge impact on Vietnam’s real estate market. The transfer of bad debts by VAMC would help to re-establish the relationship between banks and enterprises, with the latter gaining access to new loans and the former being in a position to lend.

Recent research released by the Ministry of Construction shows that Vietnam’s real estate market experiences a growth cycle over seven or eight years. Major fluctuations in price and the volume of real estate transactions were seen in a number of the country’s large cities in 1993, 2000 and 2007. History therefore suggests the possibility of similar movements around this time, though it’s far from being written in stone. Earlier this year the housing market saw a number of positive signs, especially in the affordable housing segment. Many projects with solid construction progress and developer prestige in Hanoi, such as Xuan Phuong, Royal City, Times City, Golden Silk, CT3 Co Nhue, and N04 Trung Hoa - Nhan Chinh, saw high volumes of successful transactions.

Ho Chi Minh City’s apartment for sale market in the first quarter witnessed capital values rising marginally quarter-on-quarter, with most projects maintaining asking prices or increasing them by 1 - 2 per cent, according to JLL’s quarterly report. The slight increase in sale prices was at completed or nearly-completed projects with good sales performances and new launches have slightly higher sale prices. “Obviously, any price increase is a positive sign for the real estate market and confidence continues to return,” Mr Wyatt added. “In our opinion, while we are seeing some price increases in specific projects we are coming off low values, as prices have fallen over the past three or four years.” Plus, after an economy endures a long period of tight monetary policy there is a tendency for it to “break out”. “We are seeing positive signs in all macro indicators and a slight rise in consumer confidence, and this equates to positive demand and fair pricing,” Mr Griffiths said.

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