The long slump has caused a shakeout in the Vietnamese property market. Developers with deep pockets have been coping, others have not been so lucky.
It is an inevitable rule in any market, Guy Major, national director of residential sales at Savills Vietnam, tells Thanh Nien Weekly in an exclusive interview, and forecasts a recovery by next year.
Thanh Nien Weekly: Some property companies recently decided to go in for distress sales. What do you think about it?
Guy Major: The market has witnessed a decrease in selling prices of some residential projects in both Hanoi and Ho Chi Minh City in the form of sales incentives or direct discount. This phenomenon is the result of the tightened financial policy and too much unsold stock while buyers are in a "wait-and-watch" mood for prices to fall further.
Some other projects offered deep discounts due to their poor sales strategy in terms of target market identification, product mix development, starting prices, margin expectations, construction plans and being inflexible to market changes. However, as is the nature of market movements, once the market is at the bottom for such a long duration like now, it will begin going up tentatively.
Besides, discounts could sometimes backfire. Developers need to consider carefully about how much discount they should offer because it could affect their prestige and project quality as well as the profits of earlier buyers. If too many projects offer discounts, the competition also becomes more intensive. Whether to offer a discount or not depends on the developers' strategy.
Instead of applying deep discounts, some others like EcoPark in Hung Yen or EcoLakes in Binh Duong are still sticking to their long-term strategy by developing complete infrastructure and facilities and offering reasonable prices when they first launch to ensure capital appreciation from the long-term perspective.
Have prices reached the bottom?
- Amid the downward trend which has continued since the second half of 2010 until now, there have been some bright spots in the lower end of the market (sub-VND20 million per square meter). Savills believes that with fewer developers launching in the market and with prices having come off by at least 30 percent in a lot of cases, prices are now almost close to the bottom. Of course, units cannot be offered at below construction and land cost.
On the positive side, the changes in the market has created good conditions for end-users who wish to buy property and long-term investors to access quality projects by developers with strong financial resources and good sales strategies.
Is the property market slowdown having a domino effect?
- Obviously, when demand weakens, so does price. But the extent of discounts will be limited by the cost of land, the cost of construction, the construction quality, and facilities. Prestigious developers with strong financial health will be proactive in preventing the domino effects occurring on a large scale by focusing more on quality finish, increasing value-added services, and offering reasonable price as well as flexible payment terms to attract customers.
Do you think a downward price trend is inevitable in the property market in the coming time?
- As mentioned above, many developers have cut their prices almost to the bottom. Besides, many developers are shifting from short-term profit to a long-term business strategy by adjusting profit expectations to a more acceptable level. Therefore, a further downward trend is not essential.
The underlying trends in the property market remain strong due to one of the highest urbanization levels in the world.
All we need is an increase in confidence among targeted buyers through more reasonable selling prices and payment terms. Also developers' commitment such as construction quality and progress and completed infrastructure and facilities is very important.
A strong stable government is helping Vietnam attract many multinational companies who are moving their manufacturing facilities from China.
It is forecast that there will be more bankruptcies among property developers in 2012 because of the low market liquidity. What is your opinion about the forecast?
- We have witnessed a shakeout in the market over time. Investors with deep pockets were able to manage their difficulties. Others withdrew from the industry. That is not a negative sign but an inevitable rule in any market.
In my opinion, the market will recover in 2012 with... prices seeing moderate improvement in the third and fourth quarters.
What measures would help reduce property developers' risks and increase liquidity in the market?
- To reduce risks and revive operations after a challenging period, property firms should reconsider their business strategies and capacity.
As for market liquidity, it is affected by the relationship between customers and developer. Thus, to improve the liquidity, this relationship should be improved first by satisfactory commitments from both sides.
Customers have adopted a wait-and-see attitude and lost confidence in the property market because of contrary information sources on the market. Developers should listen to their customers' concerns, provide full information transparently to them, keep their commitments on construction schedules and the handover dates; offer all facilities required for comfortable living; and diversify the product mix to meet customers' demands.