Realty industry hindered by capital shortage

Local real estate firms are facing a shortage of capital as they can’t easily access bank loans or borrow from their customers like before.
The majority of property firms only have about 20 percent of invested capital by using their own equities when developing fresh projects. This means they have to borrow money from banks and customers to cover the remaining necessary capital, with the ratio
of banking loans accounting for the majority.

Due to this huge reliance on mobilized funds, the property market is especially vulnerable upon any monetary policy change, as seen in the current situation.

Credit applications from industry players are now not accepted by lenders, who themselves are having difficulty recovering debts from realty projects.

Due to the weak liquidity of the market, mobilizing capital from customers for new schemes is no longer easy either.

Meanwhile, attracting funds via the stock market has faced the same difficulty.

Several realty businesses that in 2009 and 2010 had decided to list shares failed to attract any fund from this channel last year as a result of the gloomy stock market.

A series of property firms were forced to cancel share issuance plans after failing to attract buyers.

The execution of many real estate projects has thus been suspended for lack of funds.

Tran Minh Hoang, chairman of VinaLand Limited, said property developers had to find their own ways to find funds. Transferring land to other partners is a recommended choice, Hoang said.

According to Hoang, land transferring is not a new trend as it has been seen in strategic investment cooperation among businesses under which a company will transfer its project partly or wholly to partners.

For instance, Singapore-based CapitaLand Limited has invested in a project of Khang Dien Co., in HCM City’s District 2 and another one developed by Quoc Cuong Gia Lai Joint Stock Co. in Binh Chanh District. Similarly, Him Lam Land has poured capital into the Hyco4 Tower scheme in Binh Thanh District developed by another.

Market observers predict the land-transfer trend will continue this year but say it is only feasible for totally new schemes rather than ongoing projects because complicated transfer procedures and the current economic downturn discourage merger and acquisition.

Meanwhile, Hoang of VinaLand said that realty trust investment funds and housing saving funds had yet to be deployed owing to the absence of support from the local financial system.

Since last year, high bad debt ratios coupled with weak liquidity have prompted many banks to distant themselves away from lending real estate schemes, especially new ones.

Truong Van Phuoc, general director of the Vietnam Export Import Commercial Joint-Stock Bank (Eximbank), said there was little room left for property credit growth at his bank.

It is because Eximbank now concentrates on four groups that are no longer treated as non-productive segments including low cost-housing projects, Phuoc said.

When asked about realty loans, a credit officer of the HCMC-based Bank for Foreign Trade of Vietnam (Vietcombank) revealed that his bank would only disburse funds for property projects the bank has earlier pledged to finance.

Nam A Commercial Bank’s general director Tran Anh Tuan said his bank mainly served healthy and potential corporate customers besides actively collecting debts from property businesses this year.

Tuan hinted at limited new disbursement for the property industry at his bank until the market recovers.
Tuoi Tre

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