Blame game continues

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  A housing project on the western outskirts of Hanoi. Unfinished property projects and unsold houses can be seen everywhere and point to the slowdown in the property sector. Photo: AFP

Property developers, after taking a lot of flak for chasing unrealistic profits, are now pointing fingers at banks for the prolonged market downturn.

Many complain that they have tried to cut prices to clear their large housing stock but such attempts have been consistently blocked by banks who do not want the value of mortgaged assets to fall.

A developer from Ho Chi Minh City said he planned to boost sales at an apartment project in outlying Nha Be District by offering lower prices to homebuyers. However, his bank said that since loans were secured by the unsold properties, it could not allow any price cut that would leave the company short of cash for loan repayments later.

He said many other real estate companies are caught in the same situation because most of them can only fund 15 to 20 percent of the total cost a project themselves, with the rest coming from bank loans.

Le Hung, general director of the housing development arm of Hoang Anh Gia Lai, said property firms tend to overstate the scope of their project and plan to ask for very high prices from buyers so that they can take out huge loans from banks.

Now that the market has hit a slowdown, many developers want to reduce prices and even accept losses. But with the large amount of money at stake, it's understandable that banks try to prevent such a move, he said, adding that his company was able to cut prices only after it had sold other assets to repay lenders.

Hung did not say if a wait-and-see approach would work for real estate companies but warned that untimely price cuts only lead to "even more miserable deaths."

Lower prices do not always bring more customers amid these tough times, and reductions may even raise skepticism about developers and their projects, he explained.

Industry insiders say discounts may lead to customers waiting for further reductions, but that some companies do not have any other choice but to liquidate their stock as soon as possible.

A manager who asked not to be named said one more day of waiting means his company owes banks interest that is equal to the value of an apartment. So it is more about cutting losses than earning profits for the company these days, he said.

If the market does not recover soon, so many companies will have to continue to slash prices, he told Vietweek.

Vietnam's property market has struggled to get out of a crisis that began two years ago. Market conditions have changed significantly compared to the peak period in 2007-2008, when many companies, even without market experience, poured a lot of money into the sector and customers were willing to queue up overnight to snatch a home.

Now there is concern about even the large firms. Hoang Anh Gia Lai, for instance, was warned by Standard & Poor's in July about its weak liquidity despite favorable cost structures for property development and an established brand name. The ratings agency said operating performance of the company will remain "weak" in the next six to 12 months as conditions for the residential property development business remain challenging.

As can be expected from any market slump, there is plenty of blame going around.

Industry insiders complain that a credit squeeze imposed by the government in 2010 left developers and homebuyers high and dry. Even though lending has been eased recently, many developers say they are now too weak to absorb more capital, with some even trying to pull out of the market.

Officials and economists, on the other hand, blame property firms for going after a few rich buyers and speculators and paying little attention to the low and medium market segment.

News website VnExpress last week cited Deputy Construction Minister Nguyen Tran Nam as saying that he had many times asked developers to be cautious in pursuing high profits from the luxury segment. But because they kept building expensive homes, they are stuck when the segment has reached its saturation point.

He said real estate loans now total VND180 trillion (US$8.64 billion).

According to VnExpress, there are some 60,000 apartments unsold in Hanoi and Ho Chi Minh City. Economist Vu Dinh Anh said that these alone are worth more than $2.8 billion.

Anh said developers have to sit on large amounts of unsold stock because their homes are too expensive for the majority of the population, whose monthly income hovers around $250.

"Their projects are nice and beautiful for sure. But they just can't sell," he said.

Economist Dinh The Hien told Vietweek that even if they do not want to, cutting prices is the last thing property firms can do to save themselves.

Developers cannot just wait for the market to rebound but they have to bring down prices to a level that is more acceptable for buyers, he said, adding that early adopters of this strategy will have the advantage of winning customers first.

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