Property a case of who dares wins

The real estate market has taken a turn for the worse in a short time. A few months ago, developers were in an upbeat mood to see buyers queuing up overnight for apartments and prices quickly rose.

Now, they are worried whether they will be able to sell as property values drop significantly. Ho Chi Minh City’s land and housing prices have fallen by up to 60 per cent compared to peaks earlier this year. Land in Him Lam-Kenh Te, a project near Phu My Hung new town in Saigon South, used to be sold for as much as $3,000 to $5,000 a square metre. Now, it is being offered as low as $1,500 a sqm. Apartment prices have also dropped. The Vista was launched at $1,200 a sqm mid last year, but was adjusted up to $2,600 a sqm during the second launch later in the year. The Singaporean-built development in District 2 was then traded in the sub-market for as much as $3,800 a sqm. Now, some are selling at $2,200 to $2,500 a sqm. Who to blame? Apartment prices in many other projects have reduced to the levels of launching time. Market observers attribute the drops in Ho Chi Minh City’s housing prices to the credit squeeze and a market glut. Renato Shordon, associate director of CB Richard Ellis, said Ho Chi Minh City had seen a lot of new projects launched over the last few months and he expected the city to welcome a record supply this year. Meanwhile, because of a lack of new supplies, land and house prices in Hanoi stayed unchanged in the first five months. However the credit squeeze, which is the result of the government’s tightening monetary policies to tackle runaway inflation, has taken its toll on the real estate market. Land and house prices in Hanoi have started to decline and in many cases values have gone down as much as 25 per cent. Why have Ho Chi Minh City land and house prices been dropping more sharply than in Hanoi? It is because of cultural differences. People in Ho Chi Minh City are more willing to borrow from banks to buy properties, while Hanoians are more cautious, said Phan Xuan Can, chief executive officer of Tiger Invest, an investment consulting company. When the banks stopped real estate credit and raised interest rates, buyers rushed to sell and they lowered prices. It is also a question of how many people are able to pay $2,000 to $4,000 per sqm for housing projects in the second city. Of course, there are those who can afford those prices, but it is not a mass market, said Can. Speculation has been blamed for inflating property prices. Le Hoang Chau, chairman of Ho Chi Minh City Real Estate Association, said more than 80 per cent of property buyers in the southern economic hub were speculators. They deposit only a few thousand dollars in advance to win the right for purchasing an apartment. Then the right is quickly sold on the sub-market at higher prices. Such a right has been exchanged many times and some sellers even earn $10,000 to $20,000 a deal, leading to the inflated housing prices. Those who can pay hundred thousands of dollars for an apartment are just a niche market. The mass market are those who can pay only VND500 million ($30,000) to VND1 billion ($60,000), said Phan Truong Son, general director of Hop Phu Investment Development Company. The economic ripples have been pushing a number of local developers into a dire straits. Developers have been hit by the combination of falling land prices, credit crunch and construction cost hikes. Developers bite dust The tightening credit flows with borrowing interest rates of 21 per cent and banks turning their backs on property lending means developers are finding it difficult to obtain funds to keep building on current sites. Headline inflation is also pushing development costs to a new high as material prices jumped more than 22 per cent in the first five months. The poorly performing stock market, which has plunged more than 60 per cent since its peak early last year, has made it difficult for developers to raise capital. Cash-trapped developers have no way out but to call for new partners. There are a lot of locally-owned projects now on offer to potential buyers,said Pham Thanh Hung, general director of investment consulting firm Epic, who recently established a property valuation division to help investors find potential projects to buy. A lot of real estate projects are on the brink of bankruptcy, said Hung. They have borrowed from banks and are now under pressure to pay high interest rate. Can said in late 2006 and early 2007 real estate was considered as a gold mine which developers rushed to exploit. The credit expansion, which grew 53 per cent last year, fuelled the property prices and those with little cash in hand raced to acquire land for real estate development. Now, since cash flows have been tightened, developers are forced to sell. A lot of real estate projects are on sales or calling for partners on our online trading website, said Can. Among projects on sales include a 20 hectare site in Hanoi’s Long Bien district, a 30ha development in Ha Tay province and a 1,000sqm plot in Phu My Hung new town. Nguyen Xuan Dao, managing director of real estate consulting company Vietnam Property, added that he had a list of more than 20 projects calling for joint venture partners or on sales. Dao said there would be an increasing number of projects on sales in the next six months because developers were under the hammer from paying bank loans with high interest rates. Over the last few years, a lot of developers with little money and experience in real estate development have ventured into real estate and each developer has acquired several projects. Now, they have to sell if not wanting to face bankruptcy, said Dao. A case in point in an 11,464sqm plot in Tan Chanh Hiep ward, District 12 in Ho Chi Minh City. It used to be a factory, but eight years ago Saigon Agricultural Corporation bought it with the aim to build residential buildings. However, Ho Chi Minh City People’s Committee announced last week that the corporation was short of cash to build and it sold the project to Hiep Tan Joint Stock Company. Too much bad news is good news There is no better time to enter Vietnam’s real estate market than now, said Hung from Epic. If the real estate market was hot like last year, no one wanted to sell. Now, it’s time for foreign investors, those with cash and experience, to gain a foothold in the market through project acquisition. CB Richard Ellis also holds a view that the indefinite delay of a portion of locally-funded projects may prove an opportunity for overseas firms with access to cheaper capital. The barriers to entry in the Vietnamese real estate market for overseas developers have been the high cost of land and legal and business systems limiting access to suitable projects at acceptable terms. With some local land owners and developers unable to attain credit in the current economic climate, overseas investors with access to capital may have gained a stronger hand in negotiations, allowing more reasonable terms and access to better sites, the property consulting company said in a statement. Hung said it was faster to enter the market through project acquisition than establishing projects from the scratch. It takes a few years to complete investment procedures for a real estate projects in Vietnam with many costs uncontrolled, said Hung. Acquiring projects with land cleared or construction permit will help developers avoid cumbersome and time-consuming procedures, he said. The rationality to buy projects at a time the housing market plummeted, according to Vu Quang Hien, investment director of Anpha Capital Group, was that the potential remains great once the economic challenges like inflation were overcome. Rapid urbanisation will trigger demand for housing accommodation in big cities like Hanoi in Ho Chi Minh City, said Hien. However, many investors remain cautious about purchasing projects. The property prices have not plummeted to the bottom. If investors see the market’s bottom, they will buy, said Nguyen Quang Ninh, business development director of Indochina Land, which is to raise a third real estate fund of around $500 million next quarter to invest in local market. VIR