Condos developers gain profits on fake losses

Condos investors in Vietnam recently announced to sell products at 30% discount price, attracting a lot of customers and real estate traders. But is the price real?
Data of several condos projects, collected by the Tuoi Tre Online and analyzed by experts, partially clarified the above question.

After over a half of month from the offering of new price, the company Hoang Anh Gia Lai (HAGL) said that over 300 of total 500 apartments in its Hoang Anh Gold House in Phuoc Kien Commune, Nha Be Dist, HCM City were sold.

Tran Nguyen Thao, Director of HAGL property trading floor, said that apart from the discount price, the products of Hoang Anh Gold House have attracted much attention of the market thanks to flexible policy. Customers will receive presents if paying off 50% of condos value along the soft loan rate of 8% per year applied on first two years.

In November early, Saigon Mekong Joint Stock Co. also offered the Hoang Anh Gold House at 14.4 million dong per square metre, down 25-35% compared with the year 2009.

Data used to calculate apartment price is relative because it is very difficult to find the correct figures to define costs of each project (trading property in Vietnam is not usually paid via the banking system). Even the reported price with required documents via banks is only the negotiated deal between two sides [buyer and seller], which is not real.

Dinh The Hien, financer said that in the mid of September 2009, Hoang Anh Gia Lai signed the contracts to sell all products of Hoang Anh Gold House project, including 996 apartments, to BIDV Union Investment Joint Stock Co (BIDVUC), an affiliate of the Vietnam Bank for Investment and Development (BIDV). As announced at the signing ceremony, two sides agreed the price of $1,000-1,100 per square metre (equaling to 19 million dong at that time). The products then were transferred by BIDVUC to Saigon Mekong Investment JSC without elaboration of prices.

What was the cost price of Hoang Anh Gold House products?

According to the approval of HCM City Construction Department on August 6, 2009, total investment size of Hoang Anh Gold House project was 1.395 trillion dong in which the ownership amount was 209 billion dong, loans of 400 billion dong and remaining over 786 billion dong was raised from customers. The project is designed to have 28-storey block with 996 apartments with total area of 123,000 sqm.

The commercial area (not for sale) is over 26,000 sqm. One expert analyzed, if dividing total investment on total usage floor area (including the space for sale and commercial area), then plus increased price of materials against the implementation time, loan rates, and costs for advertisement and marketing and so on, the average cost price of an apartment is more than 13.1 million dong. Therefore, the selling price announced by the project investor is higher 1.3 million dong per sqm. With this price, the investor still would have been able to gain some profit if the project was not transferred.

However, due to the project was sold for two times, the price of Hoang Anh Gold House products has been raised every each transfer so the last owner Saigon Mekong has to suffer losses.

Big discount but no buyer showed up

With the same promotion program of selling off nearly 30% against investment price, PetroVietnam Land Joint Stock Co or PetroLand (PVL) only could sell six out of 85 apartments of PetroVietnam Landmark project in Dist 2, HCM City. Previously, PVL had announced to accept an expected loss as selling these 85 products at 15.5 million dong per square metre (VAT inclusive).

Instead of large offering, these products were auctioned along with the requirement that customers have to pay 100% of apartment value after signing contracts. Director of a real estate firm said, with the 100-150 sqm apartments at the lowest price of 15.5 million dong/sqm, customers are required to have around 8 billion dong. Only traders have such a large sum of money and the real demanders cannot afford.

Similarly to Hoang Anh Gold House, PetroVietnam Landmark project also was changed hands for some times, which came to PetroLand with the price of 21.36 million dong per sqm. Now PetroLand announced to sell at 23.8 million dong per sqm.
As estimated by one specialist, the cost price of PetroVietnam Landmark products is around 18.7 million dong per sqm only (excluding loan interest), lower 5 million dong than the initially announced price of the investor and 3.2 million dong than the selling price offered by PetroLand.

This is not the first time HCM City property market saw such sell-offs. By February 2009, the market witnessed a shocked sell-off of 45% as Hoang Anh River View (in Dist 2) and Phu Hoang Anh (Dist 7) were offered at new prices. A series of investors adjusted down the selling prices of Truong Tho project in Thu Duc Dist, Orient Apartment in Dist 4.

With Hoang Anh River View project, people were wondering why the investor [Hoang Anh House Construction and Development JSC] suddenly halved the selling price from $2,500 to $1,350 per sqm. But experts assessed the investor was very wise as early withdrawing from the project. Based on the cost of $1,200 per sqm, the investor earned certain amount of profits with the selling price of $1,350/sqm.

Victim or crime?

Mr Hang Quang Huy, Director of Nha Viet realty trading floor, gave his point of view that HCM City condos market will likely see a new price floor in the coming time. With the current lending rate of 20% a year, investors cannot keep the projects for so long time and may have empty hands because the loan rates will “erode” apartments. Even the market will boom, many firms will also have to sell houses for cutting loss and managing money to repay debts.

According to Dinh The Hien, property investors presently are “victims” as holding a large number of projects and also “crimes” creating the land price fever in the recent past. He cited, for example the competition among investors pushed property price to surge by 5-6 times, even 10 times in Dist 9 compared with 500,000 dong per sqm in 2006.

Property price should be reduced by further 30-50%, especially in terms of high-class condos. By that time, apartment price will stay at suitable level where real demanders are easy to access and the realty market is able to warm up, Mr Hien noted.

Prices expected to decline further

Dr Dang Hung Vo, former Vice Minister of Natural Resources and Environment, stated property prices should be cut more to the real value based on land price, construction cost, management cost. By which, the mid-class apartment price in HCM City will average between 10 and 12 million dong per sqm (in new districts) and that of mid and high class apartments should be 15-20 million dong/sqm.

(US$1 = 21,011.00 dong)

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