Capital depletion takes toll on actual property corporations: professional

Capital depletion has significantly weighed on Vietnam’s real estate businesses, leading to a serious slump in realty projects over the past several years, said an expert.

Real estate was the only sector to see a decrease in new business entrants in 2023 and 107 firms declared bankruptcy each month on average, Nguyen Quoc Khanh, vice chairman of the Vietnam Association of Realtors (VARS), said at a real estate conference last weekend.

The existing real estate firms have been bracing for losses or 80-90% decreases in profits over the year, Khanh noted, ascribing their difficulties to legal hurdles and capital shortfall.

A lack of access to capital has caused a plummet in realty supply since many in-progress projects have been suspended or delayed due to payment failures with contractors and salary payouts to workers.

According to VARS, new apartment supply nosedived from 180,000 units in 2018 to nearly 110,000 in 2019 and then 90,000 in 2020. The figure plunged to 50,000 in 2021 due to Covid-19, and the supply edged up to 55,000 in 2023, or one-third of the 2018 level.

Even though legal obstacles could be cleared when the Laws on Land, Housing, and Real Estate Business take effect on August 1, capital shortages will continue to pressure realty businesses and hinder the recovery of the real estate market, Khanh commented, referring to difficulties related to credit and corporate bonds.

Specifically, consumer loans earmarked for property purchases have been on a downward trend, though lending interest rates remain low, the expert said, citing unpredictable inflation and interest rate movements.

To address the issue, Khanh recommended local banks lower interest rates and relax lending rules for businesses and homebuyers. Lenders should extend debt payment deadlines for struggling corporations and help them access new credit loans to finance their projects.

He also suggested that real estate businesses should consider partially or entirely selling projects beyond their capabilities, restructuring their debts, planning their cash flows more effectively, lowering their profit expectations, and even selling their products at a loss if necessary.

Over time, many property developers have resorted to transferring or selling their projects to better manage their cash flows.

For example, DIC Group, listed on the Ho Chi Minh Stock Exchange as DIG, has transferred the commercial division of its phase-one Cap Saint Jacques resort project in the southern beach province of Ba Ria-Vung Tau to its affiliate DIC Hospitality for an undisclosed amount.

VRC Real Estate and Investment JSC (HoSE: VRC) has authorized its subsidiary, ADEC, to sell apartment block B of the ADC residential project in District 7, HCMC, for a minimum value of VND800 billion ($31.47 million).

In June, Nam Long Investment Corporation (HoSE: NLG) completed the transfer of 25% of the 45-hectare Paragon Dai Phuoc urban project to its Japanese partner, Nishi Nippon Railroad, for VND662 billion ($26 million). NLG is expected to earn VND200 billion ($7.87 million) in net profit from the deal.