Real estate market to remain mired in difficulties in H1: industry

Tran Khanh Quang, CEO of developer Viet An Hoa, said by the end of the second quarter companies would settle problems such as big inventories and sluggish cash flows.

From the third quarter onwards the market would gradually recover, provided bank loan interest rates remain steady at 10-12%. The decrease in prices could then slow down.

This scenario was 50% likely, but in a more optimistic one the market would quickly recover starting at the end of the first quarter though the likelihood was only 20%.

In the former case, prices in prime locations in HCMC would plateau but continue to drop in the suburbs, with few transactions taking made.

Prices would decrease by 5-7% in the city’s three neighboring provinces of Long An, Binh Duong and Dong Nai, 10-15% in Ba Ria- Vung Tau and 15-20% in more distant provinces such as Tay Ninh, Binh Phuoc and Dak Nong.

Large real estate companies were trying to fix cash flow bottlenecks by extending debts, selling part of their projects, undertaking M&A, and getting new investors with deep pockets to join them.

They would reorient their projects and reduce prices in line with demand.

Troy Griffiths, deputy managing director of property consultancy Savills Vietnam, said this year the global real estate market would move slowly due to the pressure of high interest rates and inflation.

This means real estate demand in general would tend to decrease and Vietnam would not buck the trend, he said.

Corporate bond-related problems, including investigations into wrongdoing during issuance, are also impacting capital flows, he said.

Like any other emerging country, Vietnam needs to go through this clean-up process, he said.

The cleaning up would improve the business and investment environment to make them transparent and sustainable, he said.

Many other countries have gone through the same process, which has inevitably caused problems with debt maturity and repayment by businesses, he said.

The businesses had to look to other sources of capital in the medium and short terms, but this has only been temporary, he said.

In the first six months of the year individual investors would observe the market and not make many deals, but in the long term the market still has a lot of potential, he added.

Nguyen Loc Hanh, CEO of the Asia Gem Real Estate Investment Joint Stock Company, said since developers would continue to face challenges in the first two or three quarters of this year, they should prepare for losses for at least six months and not having cash flows.

They would be forced to streamline their business models, improve management and sales efficiency and tighten their belts, and the difficulties would gradually reduce from the third or fourth quarter, he added.

The bright spots are Vietnam’s low urbanization rate of 47%, rapidly growing middle and affluent classes and a short supply of grade C properties as developers remain focused on the high-priced segments.

So demand for low-priced apartments would continue to grow for a long time, experts said.