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Reducing Real Estate Inventories

Focus on customers


The pickup of real estate prices has started to catch the attention of investors after a two-year decline. Investors began to tread the water on mid-market segments to take margins this year. Liquidity has improved in deals of VND1.2-2.5 billion flats, which usually cover 70 square metres in business districts.


According to CBRE Vietnam, a property management company, said as many as 6,550 apartments were sold in the first nine months of 2014, up 66 per cent from a year earlier. Buyers were keen on midmarket projects (an increase of 30 per cent) while budget projects saw a slump in units sold.


Other apartment segments also witnessed positive signs. Grade B rented apartments were filled up a lot in the third quarter although the average rent rates of Grade A and Grade B apartments increased 1 per cent from the previous quarter (Rent rate of Grade A apartments was US$33.4 per square metre a month, up 1 per cent from the previous quarter, while the rent rate of Grade B apartments was US$24.3 per square metre a month, up 0.3 per cent from the previous quarter).


According to the Ministry of Construction, the value of real estate inventories was on the decline, totalling VND82,295 billion in August, down nearly 13 per cent from December 2013, an equivalent to a drop of VND12,163 billion. Specifically, unsold apartments fell 17,228 units (valued at VND26,076 billion), unsold low-rise buildings were 13,657 units (VND23,151 billion), unsold residential land was close to 8.8 million square metres (nearly VND28,523 billion), unsold commercial land was more than 1.6 million square metres (VND4,545 billion).


Ms Nguyen Hoai An, Senior Manager at CBRE Vietnam, said real estate inventory is in a slight downward trend. Inventory is expected to drop further in the last months of the year when the demand usually surges.


Given current abundant supplies, buyers have many options that they can afford, she said. The downward pace of inventories will largely depend on prices and quality of construction works. Many investors are changing their projects to build smaller apartments to boost liquidity.


Unfreezing credit flows


According to CBRE Vietnam, real estate inventories are decided by market forces. But, this can also be changed if the Government intervenes with macro policies by means of interest rates. If interest rates decrease, investors will be able to access cheaper loans to complete their projects.


According to experts, Vietnam should pay particular attention to settling bad debts related to unsold properties. When inventory problems are resolved, a series of projects will billion able to clear their unsold stocks. And, as a result, investors are able to repay debts to banks. At that time, credit flows will be unfrozen.


Dr. Cao Si Kiem, Chairman of the Vietnam Association of Small and Medium Enterprises, said, the State Bank of Vietnam (SBV) must focus on tackling property-related bad debts to unfreeze credit flows. The lacklustre property market forced enterprises to borrow money from banks but they failed to recover the capital for repayment. Overall, it affects the entire economy.


Dr. Pham Sy Liem, Vice Chairman of the Vietnam Construction Association, said the decline in property inventories will help reduce bad debt in the economy. But, some inventories can be reduced but some cannot. “Some buildings cannot sell all apartments because of wrongful planning and insufficient infrastructure. Besides, the real estate market heavily relies on economic performances. Hence, the pace of inventory reduction will largely depend on economic recovery,” he added.

Source:TalkVietnam-Luong Tuan