Vietnam real estate needs diverse capital sources

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The real estate market in Vietnam needs to have a diverse basket of funds as it can't depend solely on banking credit, officials said.

Nguyen Tran Nam, deputy construction minister, said bank loans are now the major stream of capital for the sector and that this was a weakness.

At the end of November last year, loans for real estate totaled VND21 8 trillion, accounting for 11 percent of all loans in the banking system, Nam said at a conference in Hanoi last weekend.

Since credit policies are not stable at the moment, depending on bank loans will hinder the development of the market, he said. It takes several years to complete a property project and developers will face difficulties if lenders tighten control over lending.

Conversely, if credit is readily available and access to it is not restricted, the market, especially the luxury segment, will act like a "bubble, ready to pop at any moment, he warned.

Finding capital

Dang Hung Vo, former deputy minister of Natural Resources and Environment, said finding capital is the major problem for the local market.

When credit was tightened last year, the market immediately fell into decline, he said.

LISTING FOR FUNDS

Real estate companies have announced plans to list shares this year as they want to raise capital for projects via the local stock market.

They said by doing so they can promote their projects to investors more easily and improve professionalism as well.

Nguyen Cao Tri, general director of Ben Thanh Land, said many developers had been struggling to find capital and listing would help them raise enough funds to start their projects.

Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association, said listing shares on the stock market is a fundraising method that developers should consider besides bank loans and bond issues.

But he noted that the method would only be effective for companies with promising projects that are attractive enough to investors.

Dozens of local real estate companies have listed their shares this year, local news website VnMedia reported Wednesday.

Nguyen Dinh Anh, head of the Price and Market Research Institute, said methods of raising funds for real estate projects via investment funds and the stock market are not popular.

The market has to depend on short term capital sources, and "the higher the ratio of short term funds from unstable sources, the more the market will suffer, he said.

While local developers are struggling with the problem of finding capital, many foreign investors are reportedly trying to draw on domestic funding sources.

Local developers certainly need to up their game to be able to compete with foreign peers in attracting financing, Luong Tri Thin, chairman of Dat Lanh Real Estate Company, was quoted by the Vietnam Investment Review as saying.

It is problematic if foreign investors register large projects and then bring too little money into Vietnam, he said. As they attract capital for their projects from domestic sources, local developers will have difficulties in raising funds.

Deputy Construction Minister Nam said this trend already exists.

"Some foreign investors pledge $3-4 billion for a project but only bring 20- 30 percent of that capital to Vietnam, mainly for plan development and site clearance. Then, with their experience and reputation, they raise funds right here in the country just like local developers.

It's time to review this issue and take actions if necessary, he said.

Recovery

Despite the problem with capital, Nam said the real estate sector will recover this year as demand in the market, especially for residential housing and office space will continue to grow quickly.

According to the General Statistics Office in Hanoi, Vietnam will need more than two billion square meters of housing in 2010, which means around 100 million square meters has to be developed in the meantime. Rising demand is good news for the sector, the office said.

Investors are now interested in the real estate market throughout the country, not just in the big cities like Hanoi, Ho Chi Minh City and Da Nang, Nam said.

But he noted that prices are high and moving in complicated trends, posing a challenge for market management.

"House prices in Vietnam are among the top 20 highest in the world, making housing inaccessible to many people.

Vietnam's housing industry is characterized by a massive housing shortage, providing a major window of opportunity for developers, said US-based market researcher RNCOS.

"A majority of Vietnamese do not have their own permanent houses, said the researcher, "and more than 70 percent of the total resident households live in either semipermanent or temporary wooden houses without proper housing facilities.

The researcher said the country was deficient of nearly 20 million permanent housing units.

It said the number of households was also rising, resulting in a further rise in the housing requirements of the country.

Though there was a huge housing deficiency and hefty potential, affordability has remained a major obstacle for growth in the housing industry.

It said the role of the government was pivotal for housing development in the country. Authorities should take a number of initiatives to boost housing development, attract investments and provide adequate housing support to residents, the report said.

Ho Chi Minh City, which houses more than 7.1 million people excluding two million non-residents, needs to develop 100-120 million square meters of houses by 2025, or 7 to 8 million square meters a year, according to the city's housing development plan.

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