Real estate market in state of limbo

Hundreds of housing projects in Ho Chi Minh City are currently entangled in legal procedures. Experts predict that the real estate market is now entering a recession phase. 

Illustrative photo.

Real estate businesses have asked for help from the State for many years, and now with corporate bonds stagnating, bank capital being tightened, and the stock market plummeting, there are more difficulties awaiting the real estate sector.  

Projects on hold

Twelve years after receiving approval and seven years from the date the investor transferred the land to the customer, Anh Tuan Company, investor of the Lotus Residence project in District 7, has not been able to complete financial obligations for the project, even though the infrastructure has been completed.

During the last five years from 2017, Anh Tuan Company has actively contacted departments, agencies, and the People's Committee of District 7 to complete the application procedures for land use levy for the project. The company has also repeatedly sent documents to the People's Committee of District 7, the Department of Natural Resources and Environment, and the Department of Finance for their willingness to fulfill financial obligations for the project, but till today they have been unable to implement the same.

On May 26, the Department of Natural Resources and Environment presided over a meeting between the investor and the Department of Finance, Department of Construction, Department of Planning and Architecture, the People's Committee of District 7, and the Department of Planning and Investment on helping the investor complete the legal documents required for the project. Although this meeting lasted for more than two hours, the problem remained unresolved.

On May 31, Anh Tuan Company sent a document to the People's Committee of Ho Chi Minh City asking to be allowed to clear the land use fee. Most recently, on July 19, the People's Committee of Ho Chi Minh City sent a document to the Department of Planning and Investment and the Department of Natural Resources and Environment to review and handle the problems concerning the project. But so far nothing has been resolved, and the investor still cannot pay the land use fee and the person who bought the project still cannot construct there.

This is just a typical case that Saigon Investment has brought to readers attention. In actual fact, there are more than 100 projects that are currently held up due to legal problems involving the Ho Chi Minh City Real Estate Association (HoREA),  the People's Committee of Ho Chi Minh City and other competent authorities for clearance. From May until now, the People's Committee of Ho Chi Minh City has issued many documents to assign relevant departments and agencies to urgently review and promptly resolve the matter and also guide the investors in the projects. However, the problems still remain unresolved.

In a report to the Ministry of Construction, the People's Committee of Ho Chi Minh City said that the supply of real estate in recent years has decreased significantly due to lack of uniformity in state regulations during transition and promulgation. Many projects are in the process of investigation, inspection, auditing, review of legal procedures, planning, and financial obligations, which is leading to slow settlements by some state management agencies.

Impending recession

By freezing input, businesses incur many costs. Now, with the output also affected because of credit channels being tightened, liquidity is decreasing. According to the latest data of the Vietnam Brokers Association, in the third quarter the number of real estate transactions decreased by 50 percent compared to the same period last year. Although housing prices are still high due to the expectation that the market will improve in the last months of the year. It seems that this is just imagination, as at this point companies are at breaking level and will have to even sell goods at a loss to preserve their remaining capital.

According to a report by HoREA, housing supply has been decreasing continuously since 2018 until now. If compared with 2017, the year when Ho Chi Minh City real estate market recorded the highest supply with 42,991 homes, the supply in 2018 was only 65.8 percent. In 2019 it was 53.6 percent, in 2020 it was 39.2 percent, in 2021 it was 33.6 percent, and in the first six months of 2022, the supply was only 9,456 houses. This shows that real estate enterprises are facing challenges and also substantial losses of liquidity.

Mr. Pham Lam, Chairman of DKRA, has warned that the market may be entering a recession phase. Currently, a number of corporations and real estate enterprises are facing many difficulties concerning liquidity and have to reduce the scale of production and business investment, such as stopping or suspending investment activities and construction of a number of projects. This also involves stopping new projects; stopping issuing shares to increase capital; and minimizing the entire apparatus.

In addition, due to limited sources of credit, bonds, and deposits from customers, some businesses have to borrow capital from money lenders at a very high interest rate. This is full of risks, and some may even have to sell assets at a discount of up to 40% of the contract price. This has created an opportunity for customers to buy cheaply, but the product is still at risk as it will sell at a future date.

Recently, Mr. Nguyen Thanh Nghi, Minister of Construction, predicted at an answer session for National Assembly deputies that the real estate market would still face difficulties because the construction of projects in most localities was in difficulty, leading to a decrease in the supply of houses.

On November 8, at the headquarters of the representative agency in Ho Chi Minh City at Le Duan Street in  District 1, a meeting was held to remove difficulties and obstacles for the real estate market. The meeting took place under the direction of Mr. Le Minh Khai,  Deputy Prime Minister,  and was attended by leaders from the Ministry of Construction and various enterprises and real estate groups, such as Novaland, Phu My Hung, Hung Thinh, Him Lam, Son Kim Land, and Khang Dien.

At the meeting, after listening to various enterprises as well as HoREA proposing to remove difficulties that enterprises are facing, Mr. Le Minh Khai asked the Ministry of Construction to summarize and report to the Government and relevant ministries to settle the issues. Mr. Khai  sincerely hopes that businesses will be able to overcome their difficulties at the earliest.