What has been happening in the local property market is touching the nerves of many property developers who feel pressures intensifying while witnessing their sales program barely move due to the wait-and-see attitude of buyers. The current credit crunch has driven most developers into difficulties, forcing many of them to scale down their business in order to ride through the storm; some even have to transfer their projects over to other partners to survive.
By Pham Le in HCMC
Yip Hoong Mun, chief representative of CapitaLand Vietnam Photo/dinh dung/hinh capital land khach goi/Capitalland-le toan - Photo: Le Toan What has been happening in the local property market is touching the nerves of many property developers who feel pressures intensifying while witnessing their sales program barely move due to the wait-and-see attitude of buyers. The current credit crunch has driven most developers into difficulties, forcing many of them to scale down their business in order to ride through the storm; some even have to transfer their projects over to other partners to survive.
For many others, however, the market is not as bad as it looks. Rather, prospects remain bright for long-term professional developers.
It is often said that with every problem comes an opportunity. Some developers look at the currently turbulent market as a chance to consolidate their positions and to take over others for market expansion. CapitaLand Vietnam Holdings is a case in point.
Although it has been affected by current difficulties, the Singaporean developer instead of scaling down business as their counterparts have done, has taken this chance to boost its presence in the market by continually expanding its property investment portfolios in Vietnam, which is viewed by the company as a key market in Asia and its fourth pillar of growth besides its core markets of Singapore, Australia and China.
An artist’s impression of The Vista apartment building project in HCMC’s District 2 - Photo: Courtesy of CapitaLand Vietnam Standing in turbulence market
For many developers, the Government’s Resolution 11, issued to tame inflation, stabilize the macro economy and safeguard social security, is a nightmare for them as it forces credit institutions to tighten the faucet of financial sources for the real estate sector. The Government’s credit tightening policy requires credit institutions to slow down credit growth and reduce the proportion of loans for non-manufacturing sectors in the total outstanding loans, with the real estate sector being hit the hardest. Accordingly, the proportion allocated for non-manufacturing sectors will be decreased to 22% of total outstanding loans by the end of this month and 16% later this year. That means property developers and homebuyers will continue to face challenges in accessing loans from banks.
Yip Hoong Mun, chief representative of CapitaLand Vietnam, comments on the problem, saying that Vietnam is undergoing a very challenging situation because of the very high inflation rate and trade deficit. The high interest rate poses a big problem for all developers who want to borrow money for their project development, and also a problem for individuals who want to borrow money to buy property. As a result, the property market has been affected as many developers do not want to launch their projects, particularly in HCMC.
“Now is a tough time for all developers as banks cannot lend so much money to the property sector and the increasing interest rate,” Hoong Mun says, adding that the local market has been affected and sales are slowing down.
However, he notes that CapitaLand has set a long-term development view here in the market, with the current tough market creating a good chance for the company to expand its investment portfolios. Indeed, besides moving ahead with the construction of existing projects, the Singaporean investor has acquired two more condo projects in HCMC.
Early on in May, the company, through its subsidiary CapitaValue Homes Limited, signed a joint venture agreement with Khang Dien Sai Gon Real Estate JSC to continue developing a condominium project in HCMC’s District 2. The agreement allows the joint venture, which CapitaValue Homes and Khang Dien hold a 70% and 30% stake respectively, to develop the condo project on a 29,000-square-meter site in Binh Trung Dong Ward in District 2. Some US$70 million will be set aside to develop the condo project which has 974 apartments designed to serve middle-income earners in the city.
Later on in the month of May, the company picked up the second condo project by acquiring a 65% stake in Quoc Cuong Sai Gon Company Limited (QCSG) for a cash consideration of VND121.2 billion. The VND906-billion project covers some 9,000 square meters of land in Binh Chanh District, where it intends to develop a condominium project with approximately 800 apartments.
With the two new deals, CapitaLand has undertaken seven residential development projects in HCMC and Hanoi to provide the market with more than 6,400 apartments.
Hoong Mun reveals that besides the company’s recent two projects, the company has also received a multitude of offers from developers and landlords asking to form joint ventures for project development purposes.
“We are looking at such opportunities and as long as the project is feasible, we will invest,” he asserts, adding that the company does not set a limit for acquiring projects given its long-term investment vision in Vietnam which targets to satisfy the housing demand of Vietnamese people.
Commenting on the existing trend of projects amongst developers, he observes that when the market is at its prime, everyone jumps in and acquires pieces of land with aims of becoming developers only to face dire problems when the market undergoes a crisis. Moreover, the land price in Vietnam is very high compared to most of the other Southeast Asian countries. With these high costs and currency instability, running a real estate development is tough and eventually, during difficult periods such as this, some land owners have no choice but to sell their land to other developers.
“During difficult times, only long-term good developers who can withstand the trials and tribulations will survive, whilst developers who are not as proficient have a strong possibility of being eliminated,” Hoong Mun comments.
Targeting mass housing market
Talking about the investment environment, Hoong Mun says the project development barrier to entry in Vietnam is higher as compared to other countries in Asia. Long drawn procedures, complicated regulations and the lack of transparency are amongst some of the problems discouraging many developers.
However, Vietnam’s fast urbanization has turned the country into a promised destination for many international developers, including CapitaLand. A sizeable and young population with a growing middle class that progresses in tandem with the improving economy has prompted a huge housing demand, especially in the affordable apartments sector.
The Singaporean developer, besides continuing to develop its high-end projects, has also shifted its focus to the value housing segment. To this end, it established its strategic business unit, CapitaValue Homes to develop affordable housing projects catered for middle-income homebuyers in the country.
Liew Mun Leong, president and chief executive officer of CapitaLand Group, says in a statement that the demand for affordable apartments is on the rise given the fast urban development in the country. With this in mind, CapitaValue Homes was designed to serve the housing demand of buyers who purchase apartments for accommodation not for speculation.
He says the group will leverage on its proven track record in property development and strong network in Vietnam and China to tap on the opportunities in this segment of the residential sector.
“We are on track for expansion into the value housing segment. We target to build 10,000 to 15,000 housing units in Vietnam and China annually over the next three to five years,” he reveals.
The new company will tailor apartments from 60 to 70 square meters each, with price less than US$100,000 per unit, which is believed to be suitable to the reach of the majority of Vietnamese people who can buy the apartments by using some 40% of their income.
Hoong Mun adds that the current difficulties discourage people from buying property as many purchasers are hesitant and waiting for the right time. However, the overall market potential and housing demand is very high alongside consumer purchasing ability although he advises that developers should offer their products at reasonable prices.
… and looking for better market
Unlike other developers who are decrying the credit tightening policy, Hoong Mun says that the aim of the Government is good as the policy is necessary to contain current inflation. The Government’s tough measures may cause the market to suffer on the short term but he remains optimistic that things will move forward with improvement.
Drawing comparison, he explains, “The situation now is similar to taking medication, when you are ill you need to take medicine,” adding that the time has come for developers to take bitter medicine in order to hasten the recovery of the market.
Hoong Mun projects that the property sector will continue to face hard times over the next few months although he projects that the market will change for the better. Once confidence is regained in the market, things will change for the better.
“We are confident that the market will recover in time to come,” he comments, revealing that the company plans to continue launching various condominium projects, particularly in the value housing sector later this year.
The Singaporean developer is expected to grow its total investment in Vietnam from their current asset base of S$400 million (around US$310 million) to approximately S$2 billion (around US$1.5 billion) over the next three to five years.
The Saigon Times Daily