Real estate stocks still find bottom

The last few years have seen a decline in revenue across most businesses, especially those in real estate, where the pressure of corporate bonds maturing within this year has many enterprises fearing a state of insolvency.

Although the Government has now announced many rescue measures and solutions, the effect is still to be seen.

Dismal revenue

Many of the listed real estate companies had started to feel stressed with the continued state of gloom in the market in the last months of 2022. Large enterprises such as Novaland (NVL) and Dat Xanh (DXG) faced constant difficulties. NVL revenue decreased by 29.4 percent and net profit by 70.7 percent in the fourth quarter of 2022 due to a shortage of delivered products and erratic income. DXG revenue in the fourth quarter of 2022 decreased by 56.5 percent to VND984 bln due to fewer real estate handovers and dismal revenue from the brokerage. Since then, DXG has recorded a net loss of VND408 bln due to overhead high costs. For the whole year, DXG revenue decreased by 44.7 percent to reach VND5,581 bln and net profit decreased by 87.1 percent to reach VND149 bln.

Nam Long (NLG) also recorded a sharp decline in revenue in the last quarter of 2022. Revenue in that period decreased by 63.1 percent to reach VND1,629 bln, mainly because of the handover of the Akari Flora project worth VND261 bln and the Southgate project worth VND1,219 bln. However, net profit increased by 21.1 percent to reach VND437 bln from extra income incurred of VND386 bln from the divestment of a 25 percent stake in Paragon Dai Phuoc. However, for the whole year, NLG revenue decreased by 16.7 percent and net profit decreased by 48.1 percent.

Unlike the above cases, Khang Dien (KDH) revenue in the fourth quarter of 2022 increased by 109.2 percent to reach VND1,234 bln. However, the gross profit margin decreased by 58 percentage points to 24.2 percent due to the handover of projects with low-profit margins. As a result, KDH net profit in the fourth quarter of 2022 decreased by 71.3 percent to reach VND119 bln. In the whole year of 2022, KDH revenue decreased by 22.1 percent to reach VND2,912 bln and net profit decreased by 8.3 percent to reach VND1,102 bln.

Risk of insolvency

In early 2023, there were many warnings from authorities and analysts about the pressure from corporate bonds maturing this year. It is estimated that there will be about VND23,000 bln worth of corporate bonds from many organizations that will mature in 2023, of which 90 percent will come from real estate businesses.

According to statistics of VNDirect Securities (VNDS), about VND37,642 bln worth of corporate bonds of real estate businesses will mature in the second quarter and VND65,905 bln worth in the second half of 2023. Even in the first months of 2023, several real estate enterprises faced difficulties in debt repayments and face the risk of insolvency. Their problems are related to debt restructuring, difficulty in accessing capital, and dismal sales. As of mid-February, up to 54 corporate bond issuers announced late payment of interest which raised concerns about a lack of liquidity.

Statistics by VNDS also show that the numbers are alarming when the current ratio and interest payment ratio of listed real estate companies plummeted to the lowest level. There are currently many projects that are still shelved or running behind schedule due to a shortage of capital. This situation can make the present crisis even more serious as homebuyers can get worried and stop paying off their mortgages. This situation could well lead to a state of insolvency with an increase of bond defaulters in real estate enterprises.

Cautious view

After a nationwide online conference was chaired by Prime Minister Pham Minh Chinh on February 17, the Government issued a draft resolution on a number of solutions for the real estate market such as a proposal to extend the principal and interest loans for businesses. Decree 08 offers a series of solutions to remove difficulties for businesses that have corporate bond issues. These include being able to negotiate an extension period for payment up to two years and pay back debts with shares or other assets.

Investors believe that the current supply of new apartments will be scarce in Vietnam. Although in Hanoi and Ho Chi Minh City, the absorption rate is still high, showing that the demand for housing is still positive. Therefore, the revised Land Law in 2023 will take full effect by the second half of 2024 which will be a big turning point for the real estate industry. Once legal bottlenecks are removed for new housing projects, the housing market will be able to recover and supply will also gradually increase by 2024.

However, many economic experts maintain a cautious view and believe that the real estate market still needs time to recover. Although management agencies are urgently reviewing and removing obstacles in the real estate market, the time to implement new policies is still uncertain. In addition, the solutions to the problem of accessing capital will affect large real estate enterprises with a healthy financial state, rather than smaller businesses. While sales will be difficult to pick up at least until the end of 2023, high-interest rates and new supply will remain bleak due to legal processes waiting to be cleared under the revised Land Law.

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