Kamis, 30/04/2009

Property Oversupply Looming in Vietnam

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Property Oversupply Looming in Vietnam

FALLING IN LOVE at first sight. This could be one’s feeling when looking at the profile of Vietnam in the lists of property investment locations. When you read that Vietnam experienced a property boom in 2007, you may immediately imagine property investors now face bright future in doing business in that country. But, think about it again.

As a result of the 2007 property boom, property firms have mushroomed in Vietnam. This phenomenon has incited pros and cons about its impacts on the Vietnamese property market. The influx of many new property companies in Vietnam indicates that they were meant to fulfill its market demand. The firms are involved in the investment, construction and consulting sectors while cooperating with investment securities firms.

Some people view that this phenomenon partly shows the solid ground and the reawakening of the Vietnamese property market. But, those directly involved in the property market disagree. Investors who cooperate with securities firms differ from property operators and construction firms. Securities-backed investors get support from banks and other financial institutions.

They are protected and assisted by the state and have adequate knowledge about the market. They differ from the investors of property firms who operate on their own, without any assistance from the government. Some large firms even have made investments with their own money while not adopting common visions about the future of Vietnam.

The number of property companies and investors in Vietnam has continued rising due to that country’s policy of allowing foreign direct investments (FDI) in property estate projects. This year’s FDI investments are expected to amount to US$20 billion. So far, many projects have been carried out in Vietnam. According to Le Kim Huong, director of the Provincial Department of Planning and Investment Department, projects that are awaiting government approvals will obtain them soon.

License obtaining is just one of the eight steps that investors have to go through for obtaining property project permits. The most difficult step is obtain land for such projects. For Hong, procuring 6,800 hectares of land for 41 projects is not easy work. The rising number of property companies has increased competition in the property business sector.

Then, the availability of space for investment projects has become a big question. More property firms means more land for property projects, and this surely causes a drastic rise in land prices. Continued increase in land prices automatically lead to inflation. Many property development projects also will increase property supply. Marc Townsend, Managing Director of CB Richard Ellis in Vietnam, said, “There are ‘hundreds of office buildings’ under construction in Ho Chi Minh City and completions next year will boost supply and push rents down further.”

Big supply and low demand due to the current global economic crisis have caused property price fall. In Ho Chi Minh City, prices dropped by 50 percent from the highest levels in 2007 and are predicted to decline even further in the coming months. Developers also find it difficult to seek loans. Since 2008, Vietnam has tightened credit provisions so as to keep down inflation.

Banks have stopped providing loans for businesses and have increased interest rates. The central bank will keep credit growth at 30 percent from last year’s level by prohibiting lending to the property sector and securities firms. Vietnam’s interest rates are now the highest in Asia. “It was like a tsunami wave, the ability to borrow money easily disappeared. Money went from expensive to exceedingly expensive to probably unattainable,” said Townsend.

Data at General Statistics Office in Hanoi shows that the national construction industry got stuck in 2008. The government needs to step in and solve the problems. The Vietnamese property market still has so big potentials to grow and further develop. Phan Huu Thang, head of the foreign investment department at the Ministry of Planning and Investment at the Minster of Planning and Investment said, “Foreign investors still appreciate Vietnam’s investment environment and its mid- and long-term prospects.”

For this, government intervention is required to prepare the market so that it will be able to attract more foreign investors. The government also needs to control the market’s movement and ensure that there will not be monopoly by big companies. Without such control and intervention, Vietnam’s businesses will become highly risky, at all levels. (NS)