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| "No country earning very low income per capita uses such high financial leverage ratio like Viet Nam," independent economist Le Xuan Nghia noted |
HA NOI (Biz Hub) — Viet Nam's property market is revising but depending too much on the financial market, which makes investment still risky, so developers should take prudential steps towards the market.
The warning was delivered at a member meeting of Viet Nam Real Estate Association (VNRE) earlier this week.
Statistics by HCM City Department of Planning and Investment revealed that enterprises only owned 15–20 per cent of the total investment capital, and the remaining 70–80 per cent capital was resourced from banks.
The system's outstanding loans allocated in the real estate sector as of December 2013 reached VND268 trillion (US$12.6 billion), and bad debts were escalating at fast paces, stated Tran Kim Chung, deputy head of Central Institute for Economic Management.
On the contrary, ratio of Return on Asset and Return on Equity of real estate, construction and construction material production companies is 50 per cent lower than the average ratio of the top 500 enterprises in Viet Nam. However, their financial leverage ratios are 50 per cent higher than the average ratio.
"No country earning very low income per capita uses such high financial leverage ratio like Viet Nam," independent economist Le Xuan Nghia noted, adding: "Risks caused by financial leverage are unpredictable."
The dependence on the financial market becomes worse when the money movements go through downturn periods. In the last decade, there were four financial crises and this pace was a real danger to all markets, especially real estate.
Banks tightened lending policy and charged high interest rates, which pushed many property investors into troubles, such as debt burden, stockpile or no capital for project completion.
"That is the reason why real estate companies should never together inflate prices of real estate projects despite a recent rebound. Pricing must be done very carefully," Nghia pointed out.
Experts noted that developers should focus on feasible projects and stop digging for new projects, and also cut average apartment price to VND500–700 million ($23,580–33,000) each, and to VND2–3 billion ($94,300–141,500) per terrace house.
Potential albeit risky
Despite obvious risks, a large number of economists remarked that the real estate market of Viet Nam appeared attractive after bottoming out and showing signs of recovery, the government news portal reported.
Dang Duc Thanh, dean of the Viet Nam Economists Club, stated that real estate prices in Viet Nam fell by a half against 2007 and costs of numerous departments bottomed out.
Experts assumed that in the period from the third-quarter of 2014 to early 2015, the domestic real estate market will improve if the government continues to support enterprises to handle high inventory levels and non-performing loans and raise liquidity for the real estate market.
According to Neil MacGregor, managing director of Savills Viet Nam—a real estate developer, the domestic real estate market is in an attractive period.
Neil MacGregor claimed that Viet Nam was standing at the bottom point of a real estate cycle while other Asian markets remained at the other side and are likely to be on the decline in the next few years. Hence, Viet Nam is believed to serve as an important destination for investors in Southeast Asia.
He also revealed that customers of Savills Viet Nam from Japan, Singapore and the Republic of Korea were intending to join long-term and large-scale projects on housing development in Viet Nam.
Phan Thanh Mai, VNRE's general secretary, stated that eight commercial banks were working on a pilot programme to connect investors, bidders, material providers and banks to remove difficulties and handle high inventory levels in the real estate market.
The move has defrosted the real estate market. — VNS