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Vietnam’s real estate market experiencing instability

Vietnam’s real estate market experiencing instability

Monday 18, 07 2022
The real estate market in Vietnam is facing an alarming supply-demand mismatch. Meanwhile, there also exist huge problems in capital inflow into this market.

In a recent report, the Ho Chi Minh City Real Estate Association (HoREA) has warned about a number of unstable and worrying signs of the real estate market. The first problem is the supply-demand mismatch. The shortage in housing projects has led to a shortage of housing supply.

Real Estate Association

The second is the difference in the market segment, especially in the high-end housing segment. In particular, the market is very short of supply of affordable housing priced at less than VND 2 billion/unit and social housing. This shortage has a direct impact on the goal of ensuring social security in housing for the majority of disadvantaged people in the society who are middle-income and low-income people.

Specifically, in Ho Chi Minh City, affordable housing under VND 30 million/m2 accounted for only 1% in 2020. Since 2021, there has been no affordable housing, while high-end housing accounts for 74% and middle-class housing accounts for 26%.

Thirdly, the lack of housing products, especially affordable housing,  has led to a continuous increase in house prices over the past 5 years. Currently, the price of housing in the segment of townhouses in Ho Chi Minh City is worth VND 500 billion, and luxury apartments cost over VND 100 billion.

Fourth, thousands of tourist apartments, tourist villas, tourist townhouses (condotels) have their certificates revoked due to the recognition of "residential land use rights not forming residential units”, which is against the law, causing insecurity for thousands of customers.

Finally, real estate transactions are quiet. Home buyers and investors of real estate and housing projects also find it difficult to access credit. The value of real estate corporate bond issuance decreased by 79% in the second quarter of 2022.

Creating conditions for businesses to access capital

According to Mr. Le Hoang Chau, Chairman of HoREA, Clause 2, Article 14 of Decree No. 43/2014/ND-CP stipulates that the investor must have equity capital of not less than 20% of the investment level of the project with land use below 20 hectares; not less than 15% of the project investment level using land of 20 hectares or more. This means that the investor may need to raise 80-85% capital of the total investment of the project using land.

equity capital

In addition to the initial equity capital, during the project implementation phase, the investor desperately need additional capital sources, especially credit capital and funds in the capital market, including corporate bonds.

This expert said that credit capital is very important to help implement the project. However, because the State Bank (SBV) is implementing a roadmap to gradually limit credit in risky areas, including real estate, so real estate businesses place expectations on the issuance of corporate bonds to make up for the shortfall in bank credit.

Meanwhile, the capital market is still not fully developed. Real estate investment funds and REIT funds are too small, so real estate businesses have to rely on the issuance of corporate bonds (accounting for about 38 % of GDP).

If the State tightens both credit and corporate bonds, it will disrupt the flow of investment capital. Many businesses will be at risk of "suffocation", especially while liquidity is reduced. If the real estate market stagnates or declines, it may lead to the recession of the economy because real estate is closely related to more than 35 industries and fields.

Therefore, HoREA proposed the State Bank to control and adjust credit capital rather than tighten credit, and direct commercial banks to continue lending to reputable investors and feasible projects.

HoREA

The Association also agreed with the Ministry of Finance to submit to the Government for consideration and amendment of Decree 153 in the direction of correcting and shaping the issuance of corporate bonds, especially individual bonds, in order to increase transparency and fairness, and supplement measures on credit rating of bond issuers and bond issuance consulting units, so that the bond market becomes an effective channel for raising social capital.

Source: HoREA, vietnambiz

Compiled by VietnamCredit

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