Real estate investors on verge of bankruptcy
Source: 31-JUL-2008 Intellasia | 29/Jul/2008 Thoi Bao Kinh Te Vietnam | Phap Luat HCM City
Jul 31, 2008 - 7:00:00 AM While the economy is facing its toughest test in over a decade, the sudden credit tightening is slamming real estate developers, many property projects are now put on hold with some property firms on the verge of bankruptcy when bank loans fall due.

According to statistics of real estate market researchers, up to 90% of real estate projects that are being developed in the market have to borrow bank loans. Nguyen Ngoc Duong, chair of the Five Viet Star Joint Stock Co, said that if the market continues its downward spiral, bank loans higher than 20% for a long time, project investors will fall into various difficulties.

Credit channels become scarce, raising capital via the stock market, secondary investors, clients and so on also meet with different difficulties, risks are even higher. Investment capital for each real estate project will amount up to several billion dong, or even hundreds of billions of dongs. If banks offer loans at such high interest rates, investors will run heavy losses. The upcoming time will be a difficult and tough period of the real estate market.

The biggest mistake of investors is that they only pay attentions to how to make profits as much as possible. Investors increase real estate prices higgdly-piggedly without paying attention to buyers. Some investors themselves do not have any long-term strategy, well prepare finance to deal with the worst things. "They have only land, which is used for mortgaging bank loans. Investors then make investments widespread into other two or three projects.

If inflation continues highly increasing, many projects will face up risks of bankruptcy, leading to massive elimination, said a real estate analyst.

However, according to many real estate investors, the market has not yet been so pessimistic that it can lead to massive collapse. Reduce real estate prices will be good opportunities for those who have much money to hold good property projects at low prices to expand market share.

At that time, domestic investors feel their interests hurt, hence, they will cooperate together or sell only a part of projects to foreign investors to cover expenses during the hard time.

Nevertheless, amidst the hard time of the market, some companies still announce new projects. Recently, the Tan Hung Investment Joint Stock Co has announced a nearly 20-hectare-project in South Saigon with total investment capital of up to one billion US dollar. The investor said that although the market is not favourable now however the project is targeting at the future, next two or three-years. The company has well prepared for the project by chartered capital of 500 billion dong and also calls on more capital for the project.

The Sacomreal Real Estate Co, which has ever been known as the pioneer in successfully raising capital by real estate bonds, is also facing up dilemmas during this recession time. "We issue real estate bonds, aiming to limit reliance on bank loans. However by this time when the market is unstable with high interest rates, prices and costs increase, buying power sharply reduce, we also meet many difficulties," said Bui Tien Thang, vice general director of Sacomreal.

Thang added that his company accepts challenges to supply real estate although his company knows that prolonging investment time can push up costs of projects.

The property market has strongly grown over the last time because of speculation. Real estate prices now have reduced by over 60%, which is close to the realistic value. This is a good opportunity for investors in the capital market to make investments into the property market.