Weak financial capacity puts developers at risk

The Vietnamese real estate market is currently facing difficulties due to tightened credit policies, weakening financial capacity and management, according to deputy head of the Construction Ministry’s Housing Management and Real Estate Market Department Vu Xuan Thien.
Thien said that the country’s financial system, used in relation to the property market and based mainly on bank credits and money mobilised from private individuals, remained largely uncompleted.
“This is one of the reasons why people don’t trust the idle market,” he said, adding that businesses needed to develop efficient financial resources to catch up with investment opportunities in accordance with housing demand
Phan Thanh Mai, general secretary of the Vietnam Real Estate Association (VNREA), said that while Vietnamese investors faced outstanding loans, finance capacity was one of the market’s most crucial factors.
VNREA statistics revealed a property sector credit balance of 245 trillion dong (US$11.8 billion), accounting for 10 per cent of the total figure
At present, the loan balance in Hanoi was 16 per cent while in HCM City it was 47 per cent, of which 8 to 12 per cent was made up of bad debts.
Audit reports last year revealed that 56 per cent of assets belonging to 52 real estate enterprises listed on the stock exchange were made up of bank loans, 34 per cent being short-term and 22 per cent long-term.
While the deadline for commercial banks to lower loan balances to 16 per cent was earmarked for the end of this year, the ratio at banks, especially small ones, accounted for 40 to 50 per cent of total numbers.
MoC figures found that most real estate businesses were small-scaled, registered capital ranging from 10 to 50 billion dong ($480,000-2.4 million), 11 times higher than those with more than 500 billion dong ($24 million).
Deputy minister of Construction Nguyen Tran Nam said that charter capital needed to establish a property business came to 6 billion dong ($288,000) while investment required for property projects could reach in to hundreds of billions of dong.
Nguyen Ngoc Bao, chair of the Bank for Agriculture and Rural Development’s management board, said that its outstanding loan ratio was more than 6 per cent, due to bad debts related to the real estate sectors in Hanoi and HCM City. The ratio in terms of the agricultural sector was less than 2 per cent.
The Asian Development Bank, in its Asian Development Outlook Update for 2011, said that Vietnam’s GDP growth this year could reach around 5.8 per cent while annual inflation would hit 18.7 per cent.
Tightened credit policies, higher interest rates and decreasing purchasing power have forced real estate developers to lower their prices in order to reclaim investments.
Deputy general director of the advisory service at accounting giant Ernst &Young Hoang Duc Hung said that businesses have been weak in their financial management, having failed to evaluate risk factors related to projects.
Hung said that real estate developers had not considered analysing project effectiveness and quality for attracting investors and easily accessing bank loans. No plans had been prepared in response to fluctuations in business activities, exposing firms to risks related to economic changes.
“Proper financial planning would play a vital role in limiting risks,” he added.
The company’s survey showed that 73 per cent of real estate developers which owned failed real estate projects, had difficulties in evaluating risks while more than half of high-ranking leaders raised concerns that their business would be affected by certain large projects.
Experts said that loosening property credit for low-income and social housing projects would be a useful solution to the situation.”Source:Vietbiz24.com”

Tags: Real Estate Market Department Vu Xuan Thien, Vietnam housing market, Vietnam Property market, Vietnam property sector, vietnam real estate market, weak financial capicity

Posted by quynhdn on Sep 27 2011. Filed under Markets, Real Estate. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry