Cash flow difficulties and escalating material prices were among the reasons behind a 38.7% year-on-year increase in the number of Vietnamese real estate businesses going bankrupt or being dissolved in 2022.
The latest report by the Ministry of Construction (MoC) also showed that last year, many property developers had to downsize operation scale and cut staff, with some laying off 50% of employees. In addition, many firms were forced to stop or postpone investment activities, project implementation and initial public offerings (IPOs).
The ministry attributed the situation to difficulties in accessing loans, issuing bonds and mobilizing capital from individual investors, leading to a shortage of capital for implementing projects. In addition, the arrests of some business leaders for corporate bond issuance violations had a great impact on the market and investor sentiment, it added.
Data from the Ministry of Finance showed that by October 28, 2022, corporate bond issuance value had reached nearly VND329 trillion ($14 billion), down more than 25% compared to the same period in 2021. Real estate enterprises accounted for 28.87% of the total issued corporate bonds, and 35.8% of the total privately placed corporate bonds deposited by September 30, 2022. They also ranked second in bond redemption.
In late 2022 and this year, some real estate businesses have been under pressure to repay bonds before they mature for multiple reasons, including changes to the policy controlling issued corporate bonds.
In addition to capital shortages, realty companies were also hit by high lending interest and foreign exchange rates and escalating prices of petrol and construction materials that caused production costs to increase.
Dinh Minh Tuan, the southern region's director at Vietnamese realty platform Batdongsan.com.vn, said weak purchasing in the apartment sector in southern Vietnam, including Ho Chi Minh City, worsened in the second half.
“This was the first time we've faced this situation in the past five years. Normally, the later months are the peak time for transactions, but not in 2022. To stimulate demand, many firms have offered discounts of 40-50%,” he said.
Vo Hong Thang, deputy director of research and development at DKRA Group, said the market is falling into a state of "hibernation" as both supply and demand have continuously recorded sharp decreases since the middle of the second quarter, and the downtrend has shown no signs of stopping.
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 will reduce the amount of investment capital and lower project construction to avoid cash flow pressure. They will also prioritize reserving resources to deal with future emerging issues.
Prime Minister Pham Minh Chinh last Friday directed the State Bank of Vietnam to launch measures to remove difficulties in credit access for developers and buyers, and urged the development of projects, restructuring the market, and handling bad debts and corporate bonds in this field.
The PM also established a working group to remove obstacles for the implementation of real estate projects nationwide.