Government's inflation fight will decide short-term future, analysts say
Motorcyclists ride past a construction site in the suburbs of Ho Chi Minh City on August 8.
For the first time in two years, land prices have gone down in Hanoi.
Perhaps for the first time ever, developers are offering apartments in lieu of cash to building contractors.
Things have not looked bright for the real estate sector for some time now, and both industry insiders and analysts say the coming months are not going to be any different. Not with the government's tightened monetary policy, aimed at controlling inflation, still in place.
The list of woes is familiar capital shortage, increased supply, decreased purchasing power and so on.
"This is the most difficult time for property firms as prices have plummeted, and there are few transactions," said Tong Van Nga, vice chairman of the Vietnam National Real Estate Association. "In the coming time, firms will continue to face difficulties. Some of them are considering mergers as a survival tactic."
According to a recent survey by consulting firm CB Richard Ellis, up to 70 percent of residential projects in Hanoi reduced their prices by 10-15 percent in the second quarter over the first quarter.
The situation in Ho Chi Minh City was not much different. Fewer buyers of residential apartments can complete all cash transactions, and mortgage loans are proving even less popular than before, the company said in report.
Abundant supply is one of the reasons for the fall in prices. In the second quarter of 2011, Hanoi's supply of over 7,500 apartments equaled half of the figure for the whole of 2010, the report said.
Nga said weak cooperation between real estate firms, especially in the context of limited financial capacity, made the situation more difficult.
Several firms failed to survey market demand or assess payment capacity of consumers and, therefore, could not pursue sound business strategies, Nga said.
Capital shortage is the main reason for the current difficult situation in the real estate market, Deputy Minister of Construction Nguyen Tran Nam told the press late last month.
"The property market now depends heavily on bank loans, so when the capital source is narrowed, the market will face difficulties," he said.
If banks continue to refuse lending real estate firms without some flexibility, many property firms would not have enough funds to complete their projects, increasing the risk of bad debts, he said.
His ministry has called for a ban on lending to luxury real estate projects, but said that the development of industrial projects, new offices and individual homes deserved to access bank loans.
The State Bank of Vietnam has ordered local banks to cut lending for non-manufacturing purposes to 16 percent by the end of the year as part of an effort to rein in inflation.
Finding it hard to sell property and stuck with a shortage of funds, some real estate developers in Ho Chi Minh City have paid construction firms with apartments instead of money, according to local newspaper Saigon Tiep Thi. The apartments are sold at 5-20 percent lower than those in the market, the paper reported recently.
Chairman of the Real Estate Association of Ho Chi Minh City,
Le Hoang Chau, said the market situation in the coming months may be even more difficult than the first half, as investors as well as consumers still face difficulties in accessing bank loans.
Chau said the biggest difficulty for property investors now is that they do not have customers, especially in the luxury apartment segment.
Former Deputy Minister of Natural Resources and Environment Dang Hung Vo said developers should seek ways to mobilize capital from consumers and foreign investors for projects under construction.
The market now depends on the government's inflation fight and credit policies, he said.