Alan Phan tells Vietnam to leave property market to fall

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Vietnam's property market should not be rescued at the risk of stoking inflation, while its fall will help revive demand, a renowned Viet kieu fund manager has said.

Alan Phan, chairman of the Hong Kong-based private-equity fund Viasa, told news website VnExpress that any rescue effort would come at a price.

"The market should be left to regulate itself, and it will bounce back in four or five years," he said.

Vietnam's property market has been in a deep slump for the last two years following a long period of strong growth fueled by a lending spree by banks.

Robust demand encouraged many developers to invest in high-end housing, but then came the economic meltdown and the banks were left with bad debts.

Property-related loans totaled VND203 trillion ($9.7 billion) as of last August and accounted for nearly 5 percent of bad debts.

The central bank will inject VND30 trillion (US$1.4 billion) into the banking system for lending at 6 percent to buyers and developers of low-cost housing as part of attempts to revive the market and resolve bad debts.

Phan said the money would not revive the whole market, explaining "It might stop the bleeding, but will not heal the injury."

Besides at least half of the money will be lost to "careless spending" and "lack of transparency," he said.

The first consequence of pumping cash would be inflation, which would affect every person, he said.

Property prices should be left to fall, he said.

"Then house prices will reduce by 30 to 50 percent to catch down with people's income.

"This will provide a big stimulus for consumption."

The market's fall would increase bad debts at banks and some might go bust, but this would cause no harm to the economy, he said.

"We are having a surplus, not a shortage, of banks. Half of them can die; it is not a problem as long as the government can guarantee that people will not lose their money.

"Banks will die, stocks will drop, but people's trust will be revived in a new cycle for the economy."

Real-estate supply has gone far ahead of demand or people's ability to buy, so the government needs to allow prices to fall while trying to prop up people's incomes, he said.

Property investors said earlier this month that 2012 was their worst year, with a 17.5 percent increase in inventory that was worth more than $3 billion.

Phan, who has been doing business in the US and China for 42 years, said the Vietnamese property market is related to dozens of others sectors, and the government's indecisiveness in resolving its problems has caused investors to lose confidence in the economy.

The government should allow weak companies to go bankrupt, he said, giving the analogy of having to swallow a frog: "You should swallow it right away instead of sitting and watching it. At the end of the day, it won't get any prettier."

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