Property companies dreaming of super profit

The previous fame “super profit” is making a lot of real estate project investors face hardships in trading, according to Vietnam Investment Review.
South Korean group Inpyun, investor of Daewoo-Cleve high-class condominium project in Van Phu, Ha Dong Dist, Hanoi has decided to provide loans their customers to pay for second and fourth phase. The loan is equal to 25% of condo purchase contract with the soft interest rate of 12% a year.

The money amount which Inpyung Group spent on funding and simulating sales may be very small compared with total investment capital of over $420 million for the project, but this move reflected clearly the Vietnam property market at the time of slumping prices.

Earlier, Keangnam Landmark Tower project in Hanoi as well offered around 1,000 apartments being sold at $3,000 per square attached with the difference of 5-10% of apartment value for brokers. Thus, the situation of later projects is very difficult.

Dr Nguyen Truong Tien, Project Appraiser of Ministry of Construction said that three years ago, condominium investment in Vietnam brought in super profit, in which real estate investors earned robust profit from newly emerging market segments as the demand for houses, capital poured into the market (including domestic capital, FDI, overseas remittance) were increasing highly.

But when the credit was tightened, capital support operations of banks to the real estate market was controlled toughly for which the market was gloomy, transactions slowed down and profitability of the realty market declined.

Mr Le Hoang Chau, Chairman of HCM City Real Estate Association was quoted as saying that investment cost for one square meter of housing included land price, construction cost, costs for joint utilities of whole building (infrastructure, swimming pool, playground, basement, landscape), in which, land price accounted for 10-15%.

Construction cost is consisting of design cost and execution supervision, which also is like indirect costs on management, financial cost (accounting for 70-75% of investment cost).

At this time, the construction cost of a high-class condominium building with uncompleted interior decoration ranges between 11 million and 13 million dong per square meter plus aforementioned indirect costs, totalling at 18-25 million dong/sqm. Thus, investors find it very hard to earn profit.

The factors affecting to construction cost are architect design and landscape, Nguyen Ba Duong-General Director of Coteccons analyzed, adding that big building with more complex design will require bigger investment cost.

So, when the market faces difficulties, attracting customers by added values means lower profit of investors. So ‘super profit’ remains the dream of real estate investors at this time. – Vietbiz24

Tags: Vietnam Property market, Vietnam property sector, vietnam real estate market