This year will be a decisive year for realty businesses, hence synchronous solutions regarding legal institutions, administrative procedures and the capital market are critical, said Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association.
Rescheduling bank debts
2022 was an especially difficult year for the real estate market and businesses, Chau said, noting that many developers had to downsize their operational scale, stop or postpone investment activities, project implementation and initial public offerings (IPOs).
In addition, many were forced to cut staff, with some laying off 50% of employees, reduce salaries by 30-50%, and cancel Lunar New Year (Tet) bonuses, the association (HoREA) chairman added.
Besides, many developers were unable to sell their products despite offering discounts of up to 50%, resulting in a serious capital shortage.
To deal with the situation, the HoREA has asked the State Bank of Vietnam to allow real estate businesses to reschedule their bank debts and access new loans with reasonable interest rates, providing they have collateral.
“2023 is forecast to be a decisive year for property firms, which are in urgent need of support to ensure liquidity. They need access to credit to overcome this extremely difficult period," said Chau.
Currently, besides legal problems, property developers are facing pressure from the maturity of privately placed corporate bonds and debts, which could potentially turn into bad debts, he noted.
It is estimated that about VND46,145 billion ($1.95 billion) worth of corporate bonds will mature in the first half of 2023, with a further VND64,185 billion ($2.72 billion) in the second half.
Enterprises with bad debts, even those with feasible projects and collateral, will not be able to access new loans unless the State Bank of Vietnam eases conditions, Chau said, adding that it is also difficult for homebuyers to access credit.
“Therefore, the central bank should issue a new circular allowing real estate enterprises to reschedule due debts within 12-24 months, keep debt groups unchanged, and take out new loans when they have collateral,” the HoREA chairman proposed.
Businesses folding en masse
Data from the Ministry of Planning and Investment shows that in the first month of 2023, there were 338 newly established real estate enterprises, with total registered capital of VND18,530 billion ($785 million), down 65% year-on-year. As many as 153 property companies were dissolved, an increase of 17.7% over the same period in 2022.
The number of firms returning to operation in January reached 499, down from 610 one year earlier. Those temporarily suspending business activities totaled 1,448, a year-on-year surge of 65%.
In 2022, the number of newly established businesses in the real estate industry increased 13.7% year-on-year to 8,593. However, those declaring bankruptcy and dissolution rose 38.7% over the same period in 2021 and accounted for 6.4% of the total number of dissolved businesses nationwide. Companies suspending operations soared 50.5% year-on-year.
According to property consultancy DKRA Vietnam, last year, real estate firms faced huge difficulties in accessing loans, issuing bonds and mobilizing capital from individual investors, leading to a severe shortage of capital for implementing projects. At the same time, the negative market sentiment, legal problems and high input material costs greatly affected their business activities.
This difficult situation had a significant impact on the growth of the national economy, reducing state budget revenue, it argued.
The Vietnamese real estate market in 2023 will continue to face difficulties with medium or low liquidity and no remarkable improvements in the short term, said Vo Hong Thang, R&D deputy director of DKRA Vietnam.
“This year, the market will witness the restructuring of real estate businesses and brokerage companies to adapt to new conditions. More companies would be choked out of the market,” he said.
The market will focus on housing products that meet actual demand in the affordable segment such as apartments under VND50 million ($2,130) per sq.m in Ho Chi Minh City, under VND35 million ($1,490) per sq.m in neighboring provinces, or the land lot segment. Projects must have full legal bases and clear construction schedules, with bank guarantees and loan support, Thang said.
“This year will be a difficult one for the resort real estate segment,” he added.
In 2023, in the face of market challenges, many real estate businesses said they would choose a cautious and defensive business plan to minimize risks. For example, they would reduce the amount of investment capital and lower project construction to avoid cash flow pressure. They would also prioritize reserving resources to deal with future emerging issues.