Property businesses push themselves into dead end: association

Real estate businesses that have been trying to weather the market storm have left themselves in a tight spot with huge debt, according to the Vietnam Association of Realtors (VARS).

Market demand continues to decline

A report on Ho Chi Minh City's real estate market and its surrounding areas in May, compiled by property consultancy firm DKRA, showed that there were no new projects for sale that month. Six ongoing projects offered 390 apartments, down 95% year-on-year. Of which, 138 units were sold, a decline of 98% over the same period last year.

Available apartments were mainly in HCMC with 307 units, accounting for 79%, while the remaining 21% were in neighboring Binh Duong province.

In HCMC, luxury apartments continued to lead the new supply during the month, mainly in the city’s eastern area. Meanwhile, middle-class apartments dominated Binh Duong’s market, especially affordable apartments in Thuan An and Thu Dau Mot towns.

The highest price on the primary market in HCMC was VND94.9 million ($4,040) per square meter, while the lowest was VND50.8 million ($2,160). The respective prices in Binh Duong were VND49 million ($2,090) and VND32.8 million ($1,400).

DKRA said that policies such as offering "huge" discounts for fast payments and extending payment deadlines were being deployed by developers to stimulate demand.

Prices on the primary market remained high under pressure from input, interest and legal costs. The number of "stop-loss" offers on the secondary market dropped sharply, largely thanks to positive signals from interest rate reductions as well as measures to remove legal obstacles facing projects.

Meanwhile, VARS said that in addition to customer reasons, there were some subjective reasons for the quiet market such as the tightening of credit and corporate bonds and lingering legal problems related to project implementation. Although interest rates have decreased since the beginning of this year, businesses are still facing difficulties.

"The pressure of financial costs has increased amid scarce cash flow, and businesses have not been able to sell their products, raise capital from bonds, or access loans, making them weaker and weaker," VARS stated, adding that the difficult situation not only affected real estate market players but also stagnation in related industries.

Avoiding "drowning in pile of assets"

A recent VARS survey showed that if the real estate market continues to suffer, up to 23% of businesses in this sector would only be able to maintain operations until Q3, and only 43% would survive until the year-end.

If a timely solution cannot be found, the realty market is likely to face the disappearance of a series of players, from developers to realtors and brokers. Many workers will lose their jobs, affecting social security.

According to VARS, the government has issued a series of policies to help real estate enterprises postpone debt payments. However, in order to save themselves, the businesses must review their resources and existing projects. They should only hold on to potential projects that can attract investment and joint venture, or those that can be sold off.

"Businesses need to proactively seek customers and investors or contact professional units to help connect with those who have demand for investment cooperation or project acquisition," the association said, adding that in order to reach an agreement soon, they should lower their expectations, and even accept a loss.

"Enterprises must consider reducing their expectations to ease cost burden and bring back cash flow to restructure. They should also balance the implementation of feasible projects and costs to avoid the risk of "drowning in their assets," said VARS.

According to the association, real estate companies in Vietnam have struggled in the first five months of the year, with 554 firms closing and brokerage activities dropping to just 30-40% of the levels seen at the end of 2022.