No real estate recovery in sight: conference

The construction site of an apartment building project in Ho Chi Minh City’s Binh Thanh District. The Vietnamese real estate market could remain in limbo next year because of the global economic slowdown, property industry executives and other experts said at a recent conference in Hanoi.

Dang Hung Vo, the former deputy minister of natural resources, said property prices could continue to fall if there are no measures to attract more capital into the industry. “It will be difficult for the market to recover in the coming year.” The need to repay bank loans would see developments cutting prices, he said, adding that many of them were unable to sell after the market began to plummet in the second quarter. Prices in large cities have fallen 40-60 percent since early this year. The number of property transactions too has fallen dramatically, by 80-90 percent compared to last year. The fact that banks are set to auction off properties pledged by borrowers would also increase supply in the market, further eroding prices, Vo told the conference on Friday. Bank interest rates are still high and unprofitable if investors borrow money to invest in real estate, delegates said. The peak rate is over 11 percent compared to just 5 percent or less in many other countries. Foreign investors would keep away due to the global financial turmoil, Vo said. Others added that this means the housing market, especially the luxury segment, is unlikely to recover in 2009. Nguyen Thi Cam Van from the Ho Chi Minh City Department of Natural Resources and Environment said the government should improve both the real estate business environment and urban planning, and make it transparent. It should also simplify investment and construction procedures, define the responsibility of all agencies in land administration, make land clearance a simpler process, and help public servants get long-term loans to buy houses, she added. Stimulus hopes Meanwhile, Le Hoang Chau, chairman of the HCMC Real Estate Association, has said the government’s proposed US$1 billion package to stimulate domestic consumption will thaw the frozen real estate market. Chau said it would give property developers cause for optimism. The general secretary of the Vietnam Real Estate Association, Tong Van Nga, also hoped that the stimulus package, part of which will be spent on housing for low-income people, would help the market. There is still great demand for medium- and low-income housing, he said, adding that demand has fallen only in the luxury segment, which accounts for just 10 percent of the market. The Ministry of Construction has asked the government to spend part of the package on a plan to build 10,000 apartments for low-income people by 2015. The plan, which seeks to build 5,000 flats each in Hanoi and HCMC, could cost around VND2.5 trillion ($151.5 million). Chau said the medium and low-income market segments are likely to benefit, but not the luxury segment, once the money begins to flow in the first quarter of 2009. Nguyen Kim Lan, chairman of Incomex Saigon, said his firm plans to seek funds from the government for an apartment project in HCMC’s District 7 meant for medium- and low-income buyers. “We are completing the feasibility study and hope it will get off the ground in six months’ time.” Lan told Thanh Nien Daily that it would cost VND200 billion ($11.8 million) to build 700 apartments of 40-60 square meters each. They would cost around VND400 to 600 million ($23,500-35,000) each, he said. Following the property market collapse earlier this year, apartment prices have fallen sharply, with a 30 percent drop in places like Phu My Hung and even 60 percent in some other areas. But Chau said the slump has been in the luxury segment and did not affect the medium- and low-priced segments, thanks to continuing demand from a young population in big cities. Bui Kien Thanh, an independent financial expert, said local developers had focused on luxury properties not targeted at end users who are in need of housing but do not have much money. He said the luxury segment is set for more trouble since customers have raised complaints about the quality of the apartments they have bought. The complaints have to be addressed and the economy has to recover for the segment to look up again, he said. NEW PROPERTY TAX REGIME IN 2009 Real estate transactions saw a sudden spurt in recent weeks as people rushed to complete deals by the end of this month to avoid paying higher taxes next year. With the introduction of the new Personal Income Tax Law on January 1, owners of more than one house will have to pay a two percent tax on each house they sell. Another option is to pay a 25 percent tax on the remaining money after they have bought a new house, with proceeds of the sale of a property for which all fees have been paid. Analysts say sellers would favor the first option for its convenience. With the city land valuations for 2009 having been increased by at least 10 percent from last year, residents in Ho Chi Minh City will have to pay higher land use taxes. Also from January 1, 2009, all traders are required to conduct property transactions through real estate exchanges. As a result, developers and agents are setting up real estate exchanges. The Saigon Real Estate Corporation and Nam Long Real Estate Company are among the companies that have opened their exchanges recently. Some other companies such as Eden Real and Phu My Hung have also announced the opening of their trading centers next month. The establishment of real estate exchanges in Vietnam is expected to help improve transparency in the local property market next year. Although the exchanges have been opened, the number of products listed could be limited. Many projects have been halted since the second quarter this year and almost all businesses have stopped implementing new projects, analysts say. Pham Van Hai, general director of ACB Real Estate, an arm of Asia Commercial Bank, says not many new housing projects will be started in the first quarter next year. Even large developers with extensive financial resources will need to wait and judge market movements before making decisions concerning their projects, he says. Reported by Nguyen Hang Reported by Bao Van- Minh Quang