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| Bankruptcy haunts real estate firms |
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19-NOV-2008 Intellasia | Saigon Times Daily page 3 |
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19 Nov, 2008 - 7:08:00 AM |
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The local real estate market is faced with mounting problems as a result of the protracted credit crunch, heard a recent rescue the market seminar in Hanoi.
Investors' problems
Doan Van Binh, chair of CEO Investment Joint Stock Co., says many property corporations are on the verge of bankruptcy as most money sources have been getting scarce.
Apartment project developers are required to complete the foundation of a building before they can raise money from buyers. Foundation construction usually accounts 20-30% of the total cost for a condo project. This regulation has rendered them helpless since high interest rates have made bank loans less accessible for them.
Even property investors with their own funds equivalent to 20% of the project cost usually run out of money during the site clearance stage. Lender banks have lowered interest rates but these rates remain high while market conditions have yet to improve. Therefore, property developers are still reluctant to borrow.
While domestic property companies are struggling to survive the tough times, there is an influx of foreign firms into the realty market. This has caused concerns that foreign companies in a strong financial position will dominate the local market, and expel those unable to compete from the market.
Nguyen Van Duc, deputy director of Dat Lanh Real Estate Company, says that while domestic companies are thirsty for capital, international investors have the opportunity to acquire half-done property projects at a low price.
"If the situation does not improve, the nation's real estate market might become a playground for foreign investors only," Duc warns.
Nguyen Duc Y, marketing director of Thu Duc House, says Vietnam's low-priced projects will bring extra profits to overseas investors.
The problem is that the realty market has long mired in a huge imbalance of supply and demand. A majority of condo projects exclusively for moneyed people have mushroomed in the past. Few developers have paid attention to the low-cost condo market segment due to a small profit margin.
Lack of capital mobilisation mechanism
For domestic companies, the outlook will remain gloomy in the near future though banks have recently cut interest rates. Along with the need for quick disbursements to keep feasible projects running, property investors must search for long-term capital resources to maintain sustainable growth and avoid bankruptcy.
Tran Luan, chair of Thien Duc Joint Stock Co., suggests that banks lend to small investors and those who are not their current customers. This capital infusion will help to avoid undesired bankruptcies that might have a domino effect.
The banking system only has short-term loans available while the realty market requires medium and long-term ones. "We have no long-term capital mobilising mechanism for the market,' said Tran Kim Chung from the Central Institute of Economic Management.
Monetary and credit policies impact the capital flow on the market. "As banks reduce loans for property projects, an investor can use just his own capital or mobilise from the secondary market, which is not stable enough for the investor to build a business strategy and complete the project as scheduled,' says Nguyen Cong Thanh, general director of Hai Phong Construction and Investment Development Co.
Nguyen Ngoc Duong, chair of Nam Ngoi Sao Viet Joint Stock Co., says that the country's nascent realty market needs huge capital for many new projects and has been hurt by the recent credit tightening.
"We need an intermediary financing market to supply capital and prevent losses when they have to borrow from banks,' Duong suggests.
Many enterprises propose establishing the Real Estate Investment Trust (REIT) to mobilise idle balances from individual or institutional investors. The funds will operate by issuing shares which are tradable on the securities market.
Do Thi Loan, general secretary of HCM City Real Estate Association, believes REIT can provide a way for investors by selling lowly liquid properties.
This is a popular model in the world, but when the REIT comes into being remains unknown. And the property market is still in difficulty.
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