New land laws expected to propel struggling real estate bond market: expert

The three Laws on Land, Housing, and Real Estate Business, which all took effect on August 1, are expected to provide relief to developers struggling with maturing bond repayment obligations, said economist Dr. Le Xuan Nghia.

According to VNDirect Securities, as of July 15, 80 firms defaulted on bond interest payment or principal repayment.

It estimates that the total outstanding private placement bonds of these 80 enterprises amounted to about VND190 trillion ($7.57 billion), or 18.7% of the total outstanding private placement corporate bonds in the market. The majority of these bonds had been issued by real estate developers.

Businesses will face increasing debt repayment pressure in the fourth quarter of this year as VND79.15 trillion ($3.1 billion) worth of bonds will mature.

During the second half of this year, the figure is estimated at nearly VND118 trillion ($4.7 billion). Notably, the real estate sector accounts for the largest share of these maturing bonds.

Faced with debt repayment pressures, many developers have resorted to issuing additional bonds to cover the principal on maturing ones.

For example, Nam Long Investment Corporation, listed on the Ho Chi Minh Stock Exchange as NLG, has decided to issue two batches of bonds in Q3, worth VND500 billion ($19.9 million) and VND450 billion ($17.9 million), respectively.

These bonds, with a 36-month term and a fixed annual interest rate of 9.78%, are intended to raise capital for repaying maturing bonds totaling VND950 billion ($37.8 million).

Similarly, GKM Holdings, listed on the Hanoi Stock Exchange as GKM, said in June that it would issue bonds worth up to VND44.9 billion ($2 million) with a nominal interest rate of 11% per year. This issuance is likely aimed at restructuring its debts, including repaying the principal on maturing bonds.

Commenting on the situation, Dr. Nghia stated that the most significant challenge facing local developers is site clearance, as the outdated compensation prices are considerably lower than the current market rates. As a result, people have been inclined to wait for new, higher compensation prices under forthcoming real estate laws, leading to project delays.

Therefore, with the introduction of new regulations under three newly enacted laws, people will receive higher compensation, enabling developers to expedite site clearance, Nghia noted.

Besides, the market will benefit from regulations concerning social housing development, permission for foreigners to purchase property in Vietnam, and increased housing market transparency, among others.

Importantly, the National Assembly’s Standing Committee will enact a resolution to address the legal obstacles hindering thousands of real estate projects in Hanoi and Ho Chi Minh City. This is projected to remove barriers for these projects within five years, providing a significant boost to the market, Nghia explained.

Once the supply issues are resolved, developers will have more opportunities to issue bonds and raise capital as well as regain investor confidence, Nghia added, emphasizing the importance of effectively enforcing the new laws and their guideline documents.