Lower home prices not enough to spur demand

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Real estate officials are proposing freeing up loans for affordable housing projects

Bricks for a construction project are stacked in Hanoi. Local developers and buyers have been caught up in difficulties caused by credit restrictions.

Property prices have fallen, but the market is still in the doldrums, partly due to credit tightening, officials and industry insiders said.

According to a report released by the Vietnam National Real Estate Association last weekend, the real estate market is desperate for funds and the government's strict credit policies have presented a real "challenge."

"The market needs a fund large enough to help it recover and move forward," the report said. "If financial measures are taken to raise money for the market, a growth momentum will be created. Its ups and downs still depend on the banking sector and monetary policies."

Deputy Construction Minister Nguyen Tran Nam said capital is both an immediate and long-term issue for the real estate market.

While credit for housing speculators must be restricted, sufficient funding needs to be ensured for both developers and homebuyers, Nam was quoted by news website VnEconomy as saying.

It's about time banks and real estate companies began working together to review the financing for property projects that could benefit economic growth, he said.

"We should only prevent lending to investors who flip properties for profit while ensuring loans to other homebuyers who have a real need for housing," said Nam, who also chairs the real estate association.

The central bank has ordered commercial lenders to restrict loans to ventures that are not related to manufacturing. The order is part of the bank's larger efforts to keep credit growth under 20 percent, this year. Analysts say that the policy has made it hard for both developers and home buyers to raise funds.

Property consultant DTZ released a report Monday, which stated that Vietnam's residential market has remained challenging during the second quarter, as demand for condominiums slowed across the board.

"The lack of demand resulted in a slight reduction in average asking prices by 1.65 percent over the quarter," the firm said, adding that secondary market prices are under greater pressure than primary prices.

"High financing rates and credit restrictions continue to dampen demand in the residential sector, particularly for condominiums," said Lu Thanh Tu, manager of DTZ's Residential Sales and Marketing department. "If the government relaxes its monetary tightening policies and finance becomes cheaper and more readily available, we expect to see a corresponding increase in demand."

But Nguyen Manh Ha, director of the Construction Ministry's Housing and Real Estate Market Management Department, said credit polices should not take all the blame for the market downturn.

The market has its own weaknesses, the most critical of which is an imbalanced market structure, Ha told a meeting in Hanoi on Tuesday.

He said many developers have been too engaged in luxury projects, neglecting the small and low-priced apartment segment. As a result, while the luxury segment has a supply surplus, many people cannot afford to buy their first homes.

According to the Ministry of Construction, many residential projects have been developed even in places that lack the infrastructure to meet the basic needs of residents. These projects cost a lot and do not contribute to the market.

Property firm Cushman & Wakefield believes that the market still has a positive long-term outlook.

There has been a price correction in the condominium market but this has been expected, the company said in its latest quarterly report.

"During the second half of the year, we expect buyers to side with projects that are led by experienced developers or those situated close to the many infrastructural improvements that will hold long term value," the firm said.

"There is still latent demand in the end user market and once the government's current policies are eased, capital is expected to become more accessible and the market will likely enter a new phase of the cycle," according to Cushman & Wakefield.

Chris Brown, a senior manager at the firm, said that economic and legislative factors have added to buyer confusion in Hanoi during the first half of the year. "More clarity on these issues will help with investor confidence during the latter part of 2011," he said, adding that experienced developers will overcome the current uncertainty in the remaining months through sensible pricing strategies and payment schedules.

Construction Minister Nguyen Hong Quan has said his ministry will ask the central bank to review credit polices for the real estate market. The ministry will also go through all property projects to be implemented this year and cancel, delay or extend some of them if necessary.

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