Real estate sector sees falling investment

HA NOI — The real estate market, which has now been frozen for years, is increasingly causing difficulties for investors.

Nguyen Ngoc Binh, chairman of the Viet Nam Mechanisation, Electrification and Construction Joint Stock Company (Meco) estimated that his company was forced to pay as much as VND70 billion (US$3.34 million) per year in interest.

This became a burden when the company’s properties remained unsold or could not be completed, he said.

A project run by the Malaysian Berjaya group to build a Viet Nam finance centre was granted an investment licence in February 2008 with a total capital of US$930.

However, due to the declining market and the current high supply of offices for lease in HCM City, the design for the building changed significantly and the project was downsized, with the investment reduced to $460 million, Dau tu Tai chinh (Financial Investment) reports.

According to Nguyen Hoai Nam, director of Berjaya Viet Nam, the drop in investment was unavoidable due to the declining market and the scarcity of buyers,

The same situation is facing many other real estate companies with high inventories, especially at a time when the real estate sector is saddled with bad debts.

According to Ministry of Construction statistics, as of the end of last year, more than 17,000 of 55,870 existing enterprises operating in the construction and real estate sector reported losses.

The percentage of enterprises incurring losses has increased strongly over the last three years, from 19.4 per cent in 2010 to 30.4 per cent last year.

Statistics released by real estate company CB Richard Ellis Viet Nam showed that about 95 per cent of units launched during the first quarter of this year were priced lower than US$1,000 per square metre. The rate over the same period last year was 26 per cent, suggesting that developers are now adapting to the new market demands.

Le Thanh Than, the director of Lai Chau Construction Company No 1 said they recently sold living space in a major project for below $700 per square metre and attracted many buyers. Than said that high costs for unnecessary procedures were pushing enterprises into difficulty and suggested that many companies were also burdened by high interest rates because their capital mainly came from loans.

He argued that property developers should rely on collecting capital from equity and from buyers, rather than bank loans. — VNS