Government efforts not enough to revive property market

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Workers at a construction site of an apartment building project in Ho Chi Minh City

The government's latest measures cannot revive the property market since it is the high-end segment that has a massive inventory while the new policies relate to affordable housing, Pham Sy Liem, vice chairman of the Vietnam Construction Federation, tells Vietweek.

There is nothing that can help revive all segments except an economic recovery, he explains.

Vietweek: How do you assess the government's recent efforts to resuscitate the property market?

Pham Sy Liem: Most of the unsold apartments are in the high-end segment. The government's recent measures aim to help low-income people own housing. The government said it is interested in developing social housing and housing for low-income people, so it subsidizes them. Developers of high-end housing can get low-interest bank loans if they turn them into low-priced housing. 

The measures have not been able to help the market recover because market laws determine growth or decline and not the government's desire.

But the market's decline negatively affects the economy, causing massive bad debts for the banking system, so the government should take measures to address it. It could ask banks to give real-estate firms more time to repay debts. Collection of land-use taxes should also be delayed.

Do you think the central bank's plan to inject VND30 trillion (US$1.4 billion) into the banking system to offer soft loans to home buyers will help revive the market?

The money will be reserved for low-priced property projects. Those who buy apartments in social housing projects will benefit, not those buying high-end apartments. The amount is not large. If an apartment costs around VND1 billion on average, only a small number of projects will benefit.

 

Developers depend mainly on funds obtained from buyers. Their projects are unmarketable, but they are not too worried since they don't face the pressure of repaying bank loans in time. So they don't cut prices much to boost sales.

PHAM SY LIEM, Vice chairman of the Vietnam Construction Federation

Property firms should find ways to deal with the large inventory of high-priced apartments by themselves. Nobody can help them. The government is now spurring housing demand only among low-income people, so it encourages the development of low-cost projects with apartments of 70 square meters and prices of VND15 million per square meter. Many middle-income people want to buy apartments but their demand is not being met due to low supply, so the government encourages the segment's development. Investors of high-end housing projects can get the government's subsidy if they turn their projects into low-priced ones. However, many investors have not done it because projects, after being turned into low-priced ones, still see poor sales.

The VND30 trillion cannot help revive the property market because it is too small, equaling only 10 percent the market's value.

So what should Vietnam do to revive the market?

Property developers should learn from this. They have developed projects without careful consideration of the market demand causing a property bubble. The government should map out the market's development targets, and warn developers when the market reaches the cap specified in the plan.

Now, the government can give investors more time to pay debts or land taxes, and help them get banks loans if their projects can be turned into low-priced ones and prove marketable.

In other countries, banks will not lend if developers are in such a situation. However, property investment funds can buy apartments as their prices reduce. They buy apartments and rent them out.

We are facing a shortage of apartments for lease, so the government can help developers get loans to develop the segment. It is a way to deal with the current market situation. There is no way to revive the whole market, but [this] could help resolve some of the difficulties.

Developers complain about the market slump but do not cut prices much. Property prices are still high. Do you think they are waiting for a possible government intervention?   

No. In other countries, in this situation, investors could face bankruptcy since they depend mainly on bank loans. In our country, developers depend mainly on funds obtained from buyers. Their projects are unmarketable, but they are not too worried since they don't face the pressure of repaying bank loans in time. So they don't cut prices much to boost sales.

In Vietnam, home buyers cannot get their apartments when the market is frozen since the developers do not have the funds to complete their projects. But they cannot get back their money either. 

Without big pressure, property firms will not cut their selling prices.

Will property prices continue to fall?

The cost of high-end apartments is high due to high land prices and large bribes paid by developers to authorities. Developers pay big bribes to get good land lots for their projects. They cannot boost sales of their apartments now due to high prices. They can cut prices but do not do so yet because they are still waiting and watching the market.

However, those with actual need for housing should buy now since they have more choices because of the ample supply. They could wait for price cuts, but at that time the number of buyers will increase, and their choices will narrow.

Besides, property prices will not fall everywhere. In some big cities, the property market is stagnant, and prices could continue to decrease. But in Binh Duong, for example, the market is still strong due to high housing demand from workers and residents. So prices will not fall there.

But in general, housing prices will not stop falling until the recession is over.

Will relaxing regulations to allow foreigners to buy houses in Vietnam revive the market?

We should always allow foreigners to buy houses in Vietnam, not just during hard times like this. But the impact is insignificant. The market will rebound only when the economy recovers. Now the economy is still facing slower growth; I don't think the market can recover.

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