Legal issues behind real estate woes: experts

By Khanh An, Huong Dung
Tue, February 21, 2023 | 6:51 am GMT+7

Legal issues are some of the main reasons that hinder real estate developers from reducing prices and activating cash flow, said experts.

When their projects encounter legal problems, developers could not sell any products despite price reductions, securities expert Dao Phuc Tuong told a forum entitled "2023 Investment: Bright Spots" last week.

Le Hong Khang, manager of credit risk analytics at FiinRatings, a division of FiinGroup, said that the legal bottlenecks of unfinished projects have resulted in limited supply, pushing up costs and sales prices.

"The most fundamental solution at the moment is to license new commercial housing projects, thereby creating a basis for all market players to draw up action plans," he noted.

The number of Vietnamese real estate companies filing for bankruptcy last year increased by 40% year-on-year, according to the Ministry of Construction. Photo courtesy of Tien Phong newspaper.

The number of Vietnamese real estate companies filing for bankruptcy last year increased by 40% year-on-year, according to the Ministry of Construction. Photo courtesy of Tien Phong newspaper.

Sharing the same view, Pham The Anh, a lecturer from Vietnam National Economics University (NEU), emphasized the urgent need to solve legal problems and reduce interest rates in order to make the real estate market more attractive and vibrant in the coming time.

Legal bottlenecks have caused hundreds of projects not to be approved, thus limiting supply and affecting the financial plans of developers, he said.

According to Tuong, another reason that makes developers unable to reduce product prices is that most have their own investors who buy products in the early stages. Once sales prices are brought down, these investors will be affected.

Regarding collateral, he said that 70% of enterprise collateral at banks comprise real estate. If they reduce sales prices, the value of their collateral will decrease. At that time, banks will require them to add collateral to meet the risk adequacy ratio. However, the issue here is whether property developers still have assets to supplement or not.

Anh from NEU held that if all internal risks are excluded, based on correlation between the current inflation situation in Vietnam as well as the ability to protect the domestic currency and interest rate pressure from outside, there is room for Vietnam to lower interest rates to support its economy.

"When interest rates are lowered, asset investment channels will be more attractive, especially securities and real estate, and of course, it will be easier for individuals to buy a house,” he said.

2022 was an especially difficult year for the real estate market and businesses, according to Le Hoang Chau, chairman of Ho Chi Minh City Real Estate Association. He said that many developers had to downsize their operational scale, stop or postpone investment activities, project implementation and initial public offerings.

They were forced to cut staff, with some laying off 50% of employees, reduce salaries by 30-50%, and cancel Lunar New Year (Tet) bonuses, he said, adding that many developers were unable to sell their products despite offering discounts of up to 50%, resulting in a serious capital shortage.

Chau estimated administrative procedural issues account for 70% of the woes property developers face.

According to the Ministry of Construction, the number of real estate companies filing for bankruptcy last year increased by 40% year-on-year.

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