Firms want out as real estate market torpor persists

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Lowered prices have failed to fill luxury apartment buildings, while the demand for affordable housing persists


  Two women sit on the side of a street beside a poster advertising luxury apartments in Hanoi. Photo: AFP

"We cannot continue to wait for the market to rebound. We need to take back capital to do other business."

The head of a Hanoi-based real estate firm was expressing a general sentiment among developers while explaining a decision to reduce selling prices of apartments that his firm has not been able to sell for three years.

The high-end apartments, measuring 150 square meters upwards, have found few takers because they were expensive and beyond the means of many customers, he said.

However, sharp reductions in prices aimed at recouping capital for reinvestment or making bank loan repayments have still failed to boost sales.

Consumers are still expecting greater price reductions, while some investors, unable to suffer further losses or worried about gloomy prospects in the coming time, have withdrawn from the market.

Prices at Westa, a property project in Ha Dong District developed by the construction and machinery firm COMA 18, have fallen to VND21 million (US$1,000) per square meter from some VND26 million late last year.

Sellers in the secondary market are offering apartments at Golden Place at VND16 million per square meter, compared to over VND19 million offered by the project's developer.

In Hanoi, the secondary asking price of apartments has decreased in most districts, according to real estate firm Savills Vietnam. Of these, Hoang Mai recorded the highest fall at 7 percent in the second quarter of this year over the first quarter, while other districts saw 4-6 percent decreases in property prices.

Savills said the price reduction was also visible in many property projects in Ho Chi Minh City.

Nguyen Duy Chinh, director of real estate firm The Win in Hanoi, said property firms have failed in their strategy to maintain high prices and wait for the market to recover, so they are reducing them now in the hope of boosting sales.

"Many developers now are facing the pressure of repaying loans that have matured. Some of them are even accepting losses. Few firms can remain in the business now if they do not boost sales and recoup capital."

Furthermore, many firms do not dare to take new bank loans because of the sluggish market, although banks have eased their credit policies for real estate projects, Chinh said.

However, the price cuts seem to have had little impact on market demand.

Nguyen Thi Huong, sales manager of a real estate firm in Khuat Duy Tien Street, said 25 apartments and villas have been registered for sale at her firm over the past three months, but only three transactions have been successful.

"All of the customers have chosen apartments measuring less than 100 square meters," she said. "Despite recent reductions, property prices are still high and exceed the income of most ordinary people."

With few customers, many property brokerage firms have gone out of business.

According to a recent report by the Hanoi Construction Department, 122 of over 500 real estate brokerage companies in the city have shut down in the past few months; 200 have seen no successful transactions during this period.

Withdrawing from the market

While many investors have cut prices to boost property sales, some others have delayed their projects to wait for the market to rebound.

The director of a construction company in Hanoi said his firm has delayed a project since early this year as the market has yet to show signs of recovery.

"We are mainly concentrating on completing under-construction projects to quickly recoup capital," he said. "We are reconsidering plans mapped out in the past, as we could lose out with new projects launched when market liquidity is so low."

Chinh of The Win said many investors who have lowered prices to take back their investment do not want to put their money in new projects. They may just invest in more profitable fields and repay bank loans, he added.

Echoing Chinh, the general secretary of the Ho Chi Minh City Real Estate Association, Do Thi Loan, said many firms want to withdraw from the property market, but are not able to do it now because it is not easy to sell real estate projects and repay loans.

Vu Dinh Anh, former deputy head of the Price and Market Research Institute under the Ministry of Finance, said it is very normal for weak property firms to pull out from the market.

"Seeking a more suitable sector to invest in is the right solution for them," he said.

Driving force

While property firms are struggling to sell large apartments, they can do well with small ones with reasonable prices.

Hundreds of people rushed to buy homes at an apartment block in Hanoi's Thanh Tri District last month. Many of them were even willing to buy the 40-66 square meter units, priced at VND14 million per square meter, from agents by paying an extra VND15-30 million per unit.

Savills Vietnam said current buyers are not speculators, but people looking for property they intend to live in. They have a greater choice now because of the limited number of people that can afford to buy apartments and the large number of units currently in stock, it added.

Key factors that affect the buying decision are prices, which should be less than VND25 million per square meter, construction status and the brand name, according to Savills.

In Ho Chi Minh City, the majority of transactions have been in the affordable segment since the second quarter. More than 70 percent of total units sold are under VND20 million per square meter, with the unit value ranging from VND600 million to under VND1.5 billion per unit, the company said.

However, despite the big demand for low-priced small apartments, many developers are still focused mainly on large-sized, high-end products.

Explaining the paradox, Nguyen Huu Cuong, chairman of the Hanoi Property Club, said the developers had bought well-located land lots at very high prices in cities, and are therefore building luxury apartments.

But Pham Sy Liem, vice chairman of the Vietnam Construction Federation, said the strong demand for low and mid-priced apartments may be the driving force behind a property market recovery this year.

Dang Hung Vo, former deputy minister of natural resources and environment, said the fall in prices has had an impact on customers' psychology, and this would help improve liquidity.

He felt the market would recover this year and stabilize, and bubbles could become a thing of the past.

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