Having right strategy â€˜the key to success’
Nguyen Vinh Tran.
Real estate developer Nam Long Investment Corporation, as scheduled, will be listed on the HCM City Stock Exchange on April 8 with the code NLG. This will facilitate the liquidity of its 95.5 million shares, especially in the context of a still-gloomy picture for both the securities and property markets. The company’s deputy general director Nguyen Vinh Tran spoke to Thuy Anh of Viet Nam News about the listing.
Why did you choose this time for the listing when the real estate and stock market situation seems unfavourable?
Listing on the stock market is a part of our development strategy, which is not affected by the fluctuation of those markets. It’s important for a business to work out a sound strategy, set a timeline and then implement it. We have confidence in our business plan and our products, and we feel that both the securities and the real estate have bottomed out. Thus, we believe that the trend will be upward in the coming months. Last year, when the real estate market was down and everyone was worrying about inventory, we launched two affordable housing projects. Both sold very well and beat our sales targets by six months. So we do have reasons to be optimistic and confident moving forward with our listing plan.
We believe that the listing, apart from helping increase the liquidity of NLG shares, will improve our market position as a focused real estate development company. It will also improve transparency and corporate governance and the ability to attract investors in the open market.
What’s your opinion of Viet Nam’s real estate market?
The affordable housing sector demand has big potential with the current population of around 90 million in Viet Nam.
Viet Nam’s property market developed too rapidly over a short period of time several years ago, and that kind of growth made it unsustainable for the market. Also, the structure of the market is not reasonably balanced in term of products, that is, there are too many high-end projects, both residential and office. While that may bring high profits and returns in the short term, it is not sustainable for Viet Nam. We believe that the real estate market needs to address fundamental supply and demand, and develop accordingly in order to be sustainable. The affordable housing sector demand has big potential with the current population of around 90 million in Viet Nam. HCM City alone needs around 70,000 affordable apartments per year and our company, with the current development plan, still can only provide 2,000 units per year to the market. So, definitely, we feel that in the affordable housing sector, there is plenty of room for other real estate developers to come in and help balance the equation. The formula for success in the affordable housing sector consists of low land price, fixed construction costs, low margins, good product design and the right size of units in order to achieve a price point that the buyers can afford. However, one major obstacle remains: the requirements from the banks for the buyers to acquire the mortgage. The Government has started encouraging policies. For example, the stimulus package of VND30 trillion (US$1.43 billion) credit programme for buyers of affordable housing is expected to take effect in mid April. They will enjoy a preferential interest rate of 6 per cent per annum for three years. We certainly hope that with support from the Government, banks will facilitate the mortgage application process for the buyers with better interest rates and will definitely have a positive impact on the real estate market in Viet Nam as a whole.
I see that strategic shareholders represent almost 35 per cent of NLG. How do they contribute to the company’s growth?
We have three foreign strategic partners and they all make positive contributions with their expertise, helping our company’s operations become more effective and raising our standards. The Nam Viet Ltd, a 100 per cent owned firm of the global financial institution Goldman Sachs, has deep knowledge about professional foreign investors. This helps us understand more about those investors and their views about investing in Viet Nam, and what they expect from a potential investee.
The fund Aseana Properties Limited (ASPL) of Ireka Development Management Sdn Bhd, a leading real estate developer in Malaysia, which is listed on the London Stock Exchange, helps us in the aspects of township development, construction, and sales and marketing. They shared with us the experience they had in the development of their real estate projects in Malaysia and by visiting these projects we had a real understandings of the lessons learned. The Vietnam Azalea Fund managed by Mekong Capital is well known in helping their investee companies with improving corporate governance, reporting, transparency and investor relations, and we are no exception to that.
What are the company’s highlights that may attract potential investors’ interest?
NLG is one of very few private companies in Viet Nam with experience of more than 20 years in real estate development. We are solely focused on our core business, which is real estate, rather than diversifying into other operations as many others do. Therefore, our cashflow is kept within our real estate development cycle to maintain our business strategy and growth. Our business activities can meet all the requirements for developing a complete project, from finding investment opportunities, securing land, planning and design, construction and project management, marketing and sales and property maintenance and management. This full set of services enables our company to take the initiative in its operations, save time and costs, and ensure our commitment to customers.
Over the years, we have developed a clean land fund of 567 hectares with the required Government approvals and are now ready for development in key locations in the south, especially HCM City. Our projects are situated near major infrastructure developments and Government-supported development zones like Sai Gon â€“ Trung Luong and Long Thanh â€“ Dau Giay expressways.
Property developers have been suffering from a shortage of capital to either start new projects or continue with the ones being under construction. How about your company?
Yes, the suffering is factual, but in our case the shortage of capital affects the timing of the projects but not our overall business strategy. We cannot say that we’re not in the least affected by the market, as shown in the prospectus, last year’s turnover and profit were not as desirable as in previous years. However, in 2012 we still launched two affordable housing projects, our Ehome product that offers apartments at the price of US$25,000 to 60,000, with efficient design and good construction quality. It was a success in term of sales. All the units of the first two blocks in the Ehome 3 launched last August, which will be handed over this July, found buyers sooner than expected. Our affordable townhouses in Ehome 4 quickly sold out during the launch of each phase. This ensured cash flows so that we could go ahead with project construction as planned. This year we’ll also start three additional projects, Ehome 5, 6 and 7, and in 2014 we will start Ehome 8 and 9. We will have Ehome 10 in 2015 and over all we will provide on average 2,000 apartment units per year to the market by 2016.
So you don’t need support from banks?
Commercial banks are willing to provide loans and we have concluded credit agreements with the Orient Commercial Bank for a credit line of VND80 billion to assist Ehome 3, and the Vietnam Prosperity Bank, VND300 billion for Ehome 4. However, with the interest rate still high, we keep our margins on affordable housing low, and we only tap into these credit lines to get the projects started. Our sales and cash flows are quite good on Ehome 3, so we did not need to borrow. That does not mean to say that we don’t need support from banks. We need to work hand in hand with the banks in order to come up with a better mortgage process that ensures loan protection for the bank, ownership guarantees from us and commitments from the buyers so that more buyers will be able to qualify to buy their first home. â€” VNS