Developers blame bad policy for sluggish Hanoi market

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Residents harvest vegetable in front of a new town in Hanoi. The city's real estate market has stalled as developers are halting projects or delaying new ones.

A capital shortage and low purchasing power has the Hanoi property market at a near standstill as the fates of hundreds of projects suspended since last year remain in limbo while authorities assess their suitability to the capital's official master zoning plan, developers say.

Some 750 projects have been suspended for reconsideration after the Hanoi zoning plan was approved last July, the Ministry of Construction has reported. The plan is to be implemented through 2030 "with a vision to 2050," according to the ministry. Companies trying to implement the projects say they are losing money and that the market won't move until these projects are approved or canceled.

All of the projects had initially been approved before the Hanoi city limits were expanded in August 2008.

Now, hundreds of them face cancellation as they are located within the city's new "green corridor," which separates the inner city from satellite urban areas.

Deputy Minister of Construction Nguyen Tran Nam said the current limbo was a temporary difficulty that the government and companies should accept. Local people also have to suffer losses from the suspension, he said.

But accepting difficulties is easier said than done, according to property investors.

"Firms have poured large investment into the projects," said Nguyen Duy Chinh, general director of real estate firm The Win. "However, they cannot implement the projects until their fate is decided."

The suspension of hundreds of projects is a consequence of poor planning, he said, adding that the ordeal was a huge waste and would continue to adversely affect the real estate market.

Pham Sy Liem, vice chairman of the Vietnam Construction Federation, said the reconsideration was a good idea, but should move faster to reduce losses to investors.

"The suspension has taken a long time," he said. "Some relevant people could make use of the reconsideration in a corrupt manner to earn money from firms. So, investors have the right to complain and claim damages if the suspension continues," he said.

"Policies have changed frequently, creating risks for property investors. The authorities should provide long-term policies to facilitate smooth operations at local enterprises."

Biggest worry: capital shortage

Chinh of The Win said the biggest factors hindering the property market are a capital shortage and low purchasing power.

Many real estate firms have heavily relied on bank loans and thus have not had enough of their own capital to implement projects after banks tightened credit to the sector, he said.

The State Bank of Vietnam has announced that it plans to continue its tightened monetary policy in 2012, limiting loans to non-production sectors, including real estate. It targets a credit growth of 15-17 percent this year.

Besides difficulties in accessing loans, high interest rates have been a problem, Chinh said. "With current interest rates at some 20 percent, the more projects developers implement, the bigger the losses. This is another reason the market has become stagnant recently."

Liem said banks do not want to lend to property investors due to worrying about bad debts amid low purchasing power.

Vice Governor of the State Bank of Vietnam Nguyen Dong Tien said loans to the real estate sector reached VND201 trillion (US$9.6 billion) last year, or 8.45 percent of the country's total outstanding loans. Bad debts accounted for 3.52 percent of the loans to the sector.

Tien said the bank would be more careful when increasing credit to the sector this year. If loans to real estate firms increase, the supply would increase, causing an imbalance amid weak market liquidity.

Meanwhile, prices will increase if more loans are given out to buyers, making it harder for poor people to buy houses, he said.

Liem opposes the tightening of credit to real estate sector. "Banks should lend to firms in all fields provided that they have ability to repay the loans."

Gloomy forecast

Construction Minister Trinh Dinh Dung has said the market could continue to slump through the first half of this year. He said the only bright segment in 2012 will be the low-income housing segment.

Chinh from The Win said the market may not prosper much this year since funding for the sector depends heavily on the banking system. If interest rates are still high, the market cannot thrive, he said.

If the situation worsens this year, many investors will need to restructure their financing sources or sell their projects to pay debts, he said.

Chinh said developers have to accept low prices, and even losses. They should also review their business strategies to cut construction costs, he added.

Some 22,000 apartments will be launched as part of 60 projects in Hanoi this year, according to a report by property firm CBRE. This will put more pressure on property developers as trading volume is expected to stay low and the percentage of successful deals insignificant.

Liem of the Vietnam Construction Federation said investors should change to survive these tough economic times. In the long term, real estate developers should seek investment from various capital sources instead of depending on banks for funds.

Vietnam aims to have 10 million square meters of housing in five years, including housing for low income earners in urban areas.

The country also aims to help 400,000 poor households in rural areas improve their accommodation conditions and reduce the percentage of underdeveloped housing to less than 5 percent.

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