Real estate investment not advisable for now

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With stocks and gold also losing luster, dong deposits stand out as the best option

 
Visitors inspect a real estate development project during an exhibition on construction and property in Hanoi. Many analysts believe 2011 is not a good year for real estate investment.

Investors are likely to stay away from the real estate market this year. The sector has been dormant since the beginning of the year, and prospects are bleak at least until mid-2012, analysts say.

Economist Dinh The Hien said the current situation is tough for real estate investors because the government is unlikely to ease credit policies for the sector, given mounting inflationary pressures.

"Property investors depend on bank credit for 40 percent of their investment. They thrive when they can make a profit from selling the properties they've previously bought, but it's not easy to do that now," Hien said. "Meanwhile, homebuyers with no interest in speculative investments cannot afford the high interests banks charge for home loans."

On the bright side, Hien said, a cool-off period is what the local real estate market needs because it has been driven by speculative demand for a long time.

The first recovery sign can come in mid-2012, he said.

Nguyen Trung Ha, director of Hoa Phat Real Eastate Company in Hanoi, said the tightening of credit policies has hit the property market really hard.

Property prices are now facing a downward pressure because many investors are trying to sell their assets, unable to withstand high interest rates, Ha said.

Buyers are holding off on decisions as they anticipate a strong flow of cheap properties coming into the market from sellers who cannot wait further for fear of more losses, he said. "But as of now, such a "˜stop loss' wave has not come."

Commercial banks have been ordered to cut back on lending to the non-production sector, which includes the stock and real estate markets. The goal is to limit credit in this sector to 16 percent by the end of the year.

Le Dat Chi, a Financial Investment professor at the Ho Chi Minh City University of Economics, said the order means banks will have to speed up collecting loans made to the real estate market.

Chi said cash-strapped developers may decide to sell at whatever prices they can in order to clear their debt, putting even more pressure on prices.

So generally it's not a good year for real estate investment, he said.

Dong assets

But the professor did not think investors should venture into anything else as an alternative. The stock market, for instance, has fallen but whether it has hit the bottom or will continue to decline further is hard to tell, Chi said.

"Even gold and dollars are not stable enough to invest in because their value will depend on both the world market and local monetary policies," he said. "Dong interest rates of 17-18 percent are not enough to offset high inflation, but it's still better to keep money in banks than to make risky investments."

Dollar and gold prices have stabilized over the past two months, following government efforts to support the local currency, including a ban on gold loans in May and a low interest rate cap on dollar deposits last week.

Economist Vo Tri Thanh of the Central Institute for Economic Management said the dollar is unlikely to gain 10 percent against the dong this year. So dollar assets are no longer as appealing as earlier, he said.

Le Ho Khoi, director of Trang An Securities Company, also said dong deposits are now a good option.

He said dong interest rates are capped at 14 percent only but banks actually offer up to 20 percent, so it's the best choice to keep dong-denominated assets in banks. That compares to a maximum dollar rate of only 2 percent.

"Those with cash savings should deposit 70 percent of their money with banks while the remaining 30 percent can be invested in stocks of companies with good performance," he said.

Phan Dao Vu agreed. "Dong deposits and stocks are the only investment options I pay attention to now," the CEO of Bao Viet Bank said. "It's not a good time to spend money on real estate, unless it is a very good project."

For investors willing to take some risk, many stocks are cheap enough to buy, he said. "Within a few days, the price can surge by between 10 to 15 percent."

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