Developers hurting, but fire sale not on

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Many real estate companies might never pay off their debts


Many residential projects in Hanoi have been halted due to slow sales

Real estate developers are feeling the pinch of a tightened monetary policy that has slowed down sales considerably, but experts say distress sales of property are unlikely at this juncture.

Pham Que Lam, deputy general director of Saigon-Thai Son Real Estate, said even though property companies are in troubled waters, they cannot simply cut prices to a level without any profit margin.

Most projects in fact are asking for the same prices announced when they were first launched on the market, Lam told Thanh Nien.

Pham Thanh Hung, deputy general director of Hanoi-based real estate services provider Century Group, believed distress sales are not an option for local developers because homebuyers will continue to stay outside the market anyway.

"Sales at low prices only work when there is a strong demand in the market," he said. "The market is now frozen, so even low prices won't be able to attract buyers."

"Many new residential projects in Ho Chi Minh City have been offered at just VND10 million (US$480) per square meter but nobody is interested," Hung said.

Several housing projects in Hanoi, including Park City and Van Canh, have also lowered their prices but to no avail, said Le Ho Khoi, general director of Trang An Securities Company.

The problem is, if they cut prices, developers risk upsetting home-buyers who'd previously bought the same apartments at higher prices, hurting their reputation, Khoi said.

Vietnam has tightened credit for the real estate sector, making it difficult for both developers and homebuyers to raise funds. As home sales have fallen, many companies are finding it hard to recoup their capital and start a new investment cycle.

Khoi said total debts owed by a company should not exceed its equity by 50 percent, but many property firms now have a debt-to-equity ratio of 10 or more, eight to ten times higher than the advisable ratio.

There is a chance that these companies will never be able to clear their debts, he said.

Many developers have posted huge losses in both the first and second quarters, saying most of their capital has been invested in projects already.

Some said success at only one or two major projects helped secure enough profit last year. That is not possible now because the market is expected to remain on edge until the end of this year at least.

The figures tell a depressing story.

Kinh Bac, a major developer in Vietnam, reported losses of more than VND96 billion ($4.6 million) in the second quarter. That compares to a net profit of VND496.3 billion during the same period last year. The company also had a cumulative bank loan of VND122 billion at the end of June.

During the same period, Sacomreal, the real estate subsidiary of Sacombank, had loans worth VND78 billion ($3.7 million), compared to just VND16 billion last year.

"Inventory levels have hit 90 percent, with all products from apartments and villas to land recording low sales," said a real estate firm executive. "Banks keep pushing us to repay loans."

The market has never been this bad, he said.

Nguyen Duc Vinh, general director at Techcombank, said as lending to the property sector has been restricted, it's inevitable that developers will face difficulties and growing stockpiles. Many companies have invested in luxury projects, and the demand in this sector is not high, Vinh said.

"Now, even if they stop investing, interest payments of more than 20 percent are enough to kill them," he said.

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