A picture taken in April shows an aerial view of a central part of Ho Chi Minh City next to the Saigon River. High inflation and interest rates along with a government-imposed credit squeeze have led to lower prices and other incentives to entice residential buyers.
Local real estate companies may have reached a point where they can no longer play the wait-and-see game.
Hurt by a prolonged market slump, several companies have decided to go for distress sales, a move that industry insiders had said was unlikely to happen as recently as two months ago, because it would mean zero profit and even losses for housing developers.
PVL, whose shareholders include subsidiaries of state-owned group PetroVietnam, was among the first companies to sell apartments at fire sale prices this year.
Prices of 85 apartments at its PetroVietnam Landmark project in Ho Chi Minh City's District 2 have been lowered by nearly 35 percent to VND15.5 million, or US$740 per square meter.
The price cut came as a surprise considering other nearby projects such as The Vista and Cantavil are still offering a high price range of more than VND30 million per square meter.
Hoang Ngoc Sau, general director of PVL, said his company was under the pressure of repaying bank loans.
PVL took a loan of VND100 billion ($4.76 million) from LienVietPostBank and the payment deadline is November 23, Sau told Thanh Nien.
If the company is unable to repay the loan in time, it will face a penalty interest rate of around 40 percent a year, he said, adding that PVL would be "paralyzed" in such a scenario.
Sau said he believes cutting prices and offering flexible payment plans to buyers is the only way out for developers.
Many property firms have been struggling this year as the market was quiet while both borrowing and construction costs were too high, he said.
PetroVietnam Landmark is a middle range project, but it would not be able to attract buyers in the current market situation unless prices are reduced, Sau said. "If the company manages to sell all the apartments at the new price, it will still incur a loss of some VND70 billion."
Several other companies have followed suit, slashing home prices by between 20 and 30 percent.
Saigon Mekong, for instance, said it decided to go for a 25 percent price cut with the 500-unit An Tien project in the outlying district of Nha Be. The new price, at VND14.5 million per square meter, would be quite competitive compared to prices in other neighboring apartment projects.
In an attempt to boost sales, the company said it will only require a down payment of 30 percent from homebuyers and will also help arrange home loans with banks.
A representative of Saigon Mekong said financing is now a problem for both developers and buyers. Real estate firms, therefore, have no choice but to cut prices to attract customers.
Analysts said the new prices offered by PVL and Saigon Mekong will start a distress sale race among real estate companies. The competition will be harsh, they said.
Property brokerage Knight Frank said in a report that the HCMC real estate market passed through the quietest period of the year in the third quarter, "with general confidence knocked by worldwide economic events and domestic uncertainty."
The company said downward price negotiations are happening, as well as longer payment schedules, bank loan support, lucky draws, and discounts for buying in bulk. "The growing inventory of unsold stock in the primary market and the large amount of stock being marketed on the secondary market provides a large amount of choice for any type of buyer and therefore a good opportunity to shop for the best deal," it said.
Knight Frank remained positive for the future of the market, expecting the central bank to relax credit growth to the sector, with inflation "hopefully coming under control."
"This could help the gradual shift from speculative demand to real end-user demand," the company said.
News website VnExpress reported Tuesday that many banks have become tougher with clients who are property developers.
Nguyen Duc Huong, deputy chairman of LienVietPostBank, was quoted as saying that his bank has stopped offering new real estate loans to focus on loan collection, after the central bank ordered all lenders to cut credit for non-manufacturing purposes, including loans to the real estate sector, to 16 percent by the end of this year.
Commenting on the VND100-billion loan to PVL, Huong said his bank has come up with measures to deal with it and make sure its bad debt level will not be negatively affected.