Property market recovery not round the corner

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Latest interest rate cut may not be sufficient to revive demand, experts say

Workers walk down the steps at a construction site in Hanoi. Experts are not very optimistic about the local real estate market, which has already seen two years of stagnation marked by capital shortage and low sales.

The State Bank of Vietnam has significantly eased its restrictions on real estate lending, raising hopes for the property market after two years of stagnation.

However, experts remain cautious, saying the latest moves may not help the market overcome the slump in demand.

Nguyen Van Binh, governor of the State Bank of Vietnam, said real estate loans were restricted last year in an attempt to control inflation. "Now that liquidity has improved and inflation has eased, the restrictions need to be lifted gradually," he said.

Home prices are more reasonable and easing credit rules will help property developers clear their stock, he said, adding that more home sales will boost other sectors, including cement and steel.

Binh said the restrictions have been significantly eased for both first-time home buyers and speculators. The central bank, however, will continue to limit lending to hotels, resorts and office building developers.

Early this month the bank cut interest rates for the second time in less than a month. The refinancing rate was reduced by 1 percentage point to 13 percent, and the discount rate by the same amount to 11 percent. It also lowered the dong deposit cap for terms of one month and above to 12 percent from 13 percent.

The policy rate cuts have been followed by banks reducing their lending rates.

Eximbank has announced a credit fund of VND6 trillion that will be lent to exporters, small and medium companies and low-income homebuyers at 16.5 percent per year. The state-owned Bank for Investment and Development of Vietnam, or BIDV, also cut its lending rates last week by between 1.5 and 2.5 percentage points, bringing lending rates to 14.5-16 percent.

Former governor of the State Bank of Vietnam Cao Sy Kiem said it was a positive move by the central bank that would encourage people with real demand to buy houses. It could also prompt people into withdrawing their savings and investing in real estate, he said.

This optimism has been countered by experts who say there are several factors that could hinder the market's rebound.

They point out that although some banks have loosened lending to property investors, customers are not very interested in borrowing.

Chairman of the Hanoi Property Club, Nguyen Huu Cuong, said many property investors have sold parts of their projects, or mortgaged their assets to take out bank loans in the past two years. These firms no longer have assets to mortgage, so they are stuck, despite lower interest rates and loosened requirements.

Therefore, he said, the government should issue policies that will allow credit access to firms that may have not fully repaid their debts, as long as they have products that can be sold.

The director of a real estate firm in Hanoi said that the interest rates, despite falling to 16-17 percent, are still too high for firms.

He felt that "in a good scenario, the market could recover in the next six to 12 months."

Dang Hung Vo, former Deputy Minister of Natural Resources and Environment, said the central bank's move could help deal with only part of the problem, as real estate prices are still too high, exceeding the payment ability of most of citizens. Thus far, the fall in prices has not spurred demand, he said.

The state bank should continue to cut rates, allowing firms to further reduce their prices, he said.

Weak demand

Demand for apartments in Hanoi continued to be weak in the first quarter, causing prices to fall across the city, real estate firm Savills said in a new report. The overall apartment market had an absorption rate of 7 percent, down 5 percentage points against the previous quarter. Grade A property continued to have the lowest absorption at only 2 percent while grade C saw its rate drop to 11 percent, down 7 percentage points.

Savills said that, since the second half of last year, the average secondary price fell in most districts, except in Long Bien and Gia Lam, where two large-scale shopping centers opened late last year. It said low-end and mid-end units are now key products of the apartment market. The firm attributed the trend to low liquidity.

Marc Townsend, managing director of CB Richard Ellis Vietnam, said: "What we're
 seeing is a face-off between developers and buyers. Residential buyers will not buy property if they think prices will go down in the future."

For over a year, developers have been trying various ways to attract buyers, including discounts, gold, cash and lucky draws, but that has not turned the residential market around.

Developers are now waiting for buyers to make the next move, he said.

With a more stable economy, calmer inflation, lower interest rates and a rising stock market, developers, a couple of whom have had reasonable sales in March, may now feel the market is approaching the bottom. If this is true, buyers may have the confidence to reengage in the market in the next two to three quarters, said CBRE.

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