Tuesday , July 16 2024

With order books empty, small construction firms struggle for survival

With the real estate market remaining sluggish, most small construction businesses are still waiting for their first contract for 2024.

Discussing his company’s current status, Ha Binh Minh, director of the Bình Minh Construction Company based in Bien Hoa City, said it has yet to secure any contracts for 2024.

As a small contractor predominantly active in the local market, the situation is challenging, he said.

“We have been experiencing a shortage of construction contracts since the middle of last year. We have had to rely on a few residential construction and repair projects to stay afloat. We are hoping for a change by mid-year.”

A prominent construction firm in HCMC that acts as a subcontractor for commercial residential projects in the city and Bình Dương Province too said it has no contracts on hand.

“We endured a project drought last year and, unfortunately, the trend persists,” its director said.

His company had contacted many main contractors and property developers, but most were waiting for construction permits, he said.

Projects announced in early 2023 have not yet begun with many developers, despite possessing the needed lands, are stuck in legal limbo.

“We are also seeking our delayed payments from main contractors as they have only paid half the money they owe since 2022. The company has resorted to using its contingency funds to keep operating.

“If the lack of new contracts continues this year, shutting down seems inevitable.”

The delay in payments, ongoing debt issues and increased costs have also made construction firms cautious, and they are more selective in accepting new contracts.

Tran Van Manh, chief of construction firm Tan Loc in Long An Province’s Tan An City in , said the company has been inching towards bankruptcy for the last two years due to the dramatic increase in construction material and labor costs in 2022.

With contracts typically lasting two to three years without the option of price adjustments, smaller contractors like his company are struggling to survive and essentially working unpaid.

According to a recent survey by VnExpress, in 2023 many contractors were relying on older contracts with lower payments, leading to a significant decline in their profit margins.

Industry leaders like Coteccons, Ricons and Hoa Binh all reported low gross profit margins of 1-2% for 2023, with many even experiencing losses.

A recent survey by the General Statistics Office found some 38.9% of construction companies expected greater challenges in the first quarter of 2024, 40.9% expected stability and only 20.2% believed business would be better.

Nguyen Ngoc Hoa, chairman of the HCMC Business Association, said: “Business conditions might improve in 2024 with some positive changes in the real estate market, but challenges will remain.”

Nguyen Quoc Hiep, chairman of the Vietnam Association of Construction Contractors, said the construction sector’s revival hinges on the real estate market’s recovery and public spending, both of which could see positive changes this year though not swift.

So the industry might languish for a while longer, he warned.

The consensus among experts is that the challenges could persist until mid-2024, and construction firms should consider expanding into fields beyond their primary expertise, like infrastructure, industrial properties and public works.

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