With capital scarce, MOC aims to make fund-raising easier for property developers

A Ministry of Construction proposal could make it easier for real estate developers to mobilize capital but, some warn, it could also reduce transparency in Vietnam’s already opaque property markets.

A Ministry of Construction (MOC) proposal now out for public comment would allow real estate developers to sell twenty percent of the units they develop directly to investors, according to a report in Dan Tri online newspaper.  Presently all unit sales must be made through posting on ‘real estate trading floors,’ or exchanges

MOC explains that the regulation, if approved, will create more favourable conditions for real estate developers seeking to mobilize capital for the projects. They can use the twenty percent share of a project’s units to compensate strategic partners or serve their business relationships.

However, experts say that the proposal would contravene the Government’s Decree 88 on granting certificates of land use rights and house ownership.  The decree  stipulates that all real estate products in projects built by development companies must be bought and sold on real estate trading floors. Decree 88 aims to ensure the transparency of the real estate market.

Matthew Kozira, a senior executive at VinaCapital, said that if the proposal is approved, investors will sell their units to insiders and the units will later be sold  to other people at much higher prices.

Vietnam has put a lot of time and effort into building a more transparent market, Kozira said.  In his view, the keys to market transparency are a clear legal basis for real estate transactions and the requirement that units be publically traded.

MOC has not made any official response to concerns raised about diminished transparency.  A ministry official said, however, that something must be done to  help enterprises to mobilize capital in the early stage of real estate projects. Real estate developers need much medium and long term capital, he explained, but the very strict provisions of current laws obstruct that.

For example, under current law, real estate investors can only mobilize capital for projects after they complete the construction of a buildings’ foundation, but that step alone alone accounts for nearly one third of a project’s total cost.

The requirement that all transactions must be carried out on real estate trading floors is also problematic, the official said.  “The effect of the current regulations is that real estate developers are forced to dodge the laws to mobilize capital.”

“Instead of forcing them to dodge the laws,” the official contended, “we should apply a flexible policy.  Done right, real estate developers will strictly respect the laws, while the real estate market will see transparency improve when eighty percent of transactions actually go through trading floors.”

Not surprisingly, the proposal by MOC has been applauded by nearly all real estate investors.  Developers are saying  that people should not expect to see a perfectly transparent real estate market overnight; in fact the market needs some more time to improve itself to become perfect.

The MOC proposal ought to be welcomed not just by individual investors but also by the investment managers of state companies and foreign funds, say developers.  They stress that as long as investment capital remains limited, no legal framework will be trouble-free and the trading floors will remain unprofessional.

VietNamNet/Dan Tri

Tags: Vietnam real estate