Property market woes engulf construction companies

Even construction businesses in niche markets such as landscaping and auxiliary equipment for property projects are struggling with cash flows.

Since December 2022 a company in HCMC’s District 3 has reduced managers’ allowances by 20-35% and scrapped some social welfare policies due to insufficient resources as it has been unable collect debts owed by some developers.

Some of the latter asked to pay in kind, but the company has refused because the real estate market currently has no liquidity.

A firm subcontracting for the second biggest construction firm in Vietnam, said cash flows have ceased with hundreds of billions of dong, equivalent to millions of U.S. dollars, buried in bad debts.

It has been trying in vain to collect the debts since the third quarter of last year, and has had to resort to its reserves, but said it would be difficult to remain in business past the middle of this year.

In early February a landscape design and construction equipment and materials provider said its 2023 focuses would completely be on collecting receivables.

The business results of listed construction companies testify to the situation.

Hoa Binh Construction Group Joint Stock Company reported a net loss of more than VND1.1 trillion (US$46.6 million) in 2022 as against a profit of VND100 billion in 2021.

It was Hoa Binh’s first year in the red since going public.

SCG Construction Group Joint Stock Company reported revenues of VND1.6 trillion, down 40%, and pre-tax profits of VND25 billion, an 80% decline.

Ricons Construction Investment Joint Stock Company’s gross profit margin was just 1.8% last year, down from 3% the previous year.

Speaking to VnExpress, Nguyen Quoc Hiep, chairman of the Vietnam Association of Construction Contractors, said: “Real estate developers owe a lot of debts including in the form of bond repayments, but cannot get more bank loans and so cannot pay.

“Some pay in kind. Even when some of their products do not legally qualify to be sold, we have to accept them because that is better than nothing.”

The scale of short-term receivables from customers for Hoa Binh by the end of last year increased by more than VND1.4 trillion last year, while provisioning for bad debts more than doubled.

Coteccons’ short-term receivables increased by 31% to VND11.2 trillion as of Dec. 31 and bad debt provisioning by 60%. Its liabilities were up 58% to VND10.75 trillion.

According to Hiep, there is no legal mechanism to protect contractors who cannot recover debts.

If they sue in civil courts as they do now, it would take several years, he pointed out.

“If this situation persists, the construction industry will run out of good companies in the next five years.”

According to a Ministry of Construction report earlier this year, the number of construction enterprises declaring bankruptcy or closing down increased by 38.7% last year.