It is believed that a number of legal amendments in the near future will likely support the residential real estate market, and a backlog at the end of 2021 can ensure a recovery in construction sales in 2022.
Under the impact of the Covid-19 epidemic in 2021, Vietnam’s construction industry was in a rather negative situation, with the low value of signed contracts at the end of 2020 negatively affecting revenue and profit of enterprises in this field. Besides, the price of construction steel increased by about 41% in the year, putting pressure on the profit margin these companies.
In 2022, it is forecasted by SSI Research that a number of law amendments in the near future that may support the residential real estate market.
First, the Land Law will be revised in 2022 and will be completed in May 2023. The revised points are expected to have specific provisions on the land price compensation coefficient to solve the issue of site clearance.
Secondly, currently, the Investment Law 2020 stipulates that the following projects must have the approval of the Prime Minister's investment policy, including:
+ projects with a land use scale of 50 hectares or more, or with a scale of less than 50 hectares but the population size is 15,000 or more in urban areas;
+ projects with a land use scale of 100 hectares or more; or less than 100 hectares but with a population of 10,000 or more in non-urban areas.
Finally, the 2014 Housing Law has not yet provided for the recognition of commercial housing project investors for those who have the right to use 100% agricultural land or non-agricultural land that is not residential land. This may limit potential residential real estate projects in the future.
Along with that, it is thought that the backlog at the end of 2021 can ensure a recovery in construction sales in 2022. Last year, Coteccons and Hoa Binh Construction had a new contract value of about VND 25,000 billion and VND 18,000 billion respectively, which was 3.6 times and 2 times higher than in 2020.
With the new contract value, both Coteccons and Hoa Binh Construction will record a strong backlog of VND 25,000 billion at the end of 2021 (2.7 times higher than the same period) and VND 21,400 billion (up 65%).
However, part of the increase in new contract value is due to delayed demand from 2020 due to Covid-19. Therefore, it is quite early to hypothesize that the new signing value in 2022 will reach the same level as in 2021.
On the other hand, the average steel price expected to decrease by 8% in 2022 can help improve profit margins of construction businesses. This will be a factor that promotes the profitability of businesses in the industry. Net profit margin will improve in 2022, but this is still much lower than the average for the period 2015-2018, due to higher competition and higher steel prices.
Profits of construction businesses can experience greater growth if the average steel price falls more sharply than forecast. Besides, the residential real estate market and the supply of new apartments may be more active, helping the contract value in 2022 increase, improving revenue and profit.
On the contrary, risks affecting business results of enterprises in this field include increased lending interest rates affecting the profit of real estate investors and income of home buyers. At the same time, high lending interest rates also affect the interest burden on construction companies that use financial leverage. The tightening of bond issuance activities will also cause short-term impacts on real estate investors with poor cash flow.
Source: SSI research, theleader
Compiled by VietnamCredit
