Real estate stocks, which are usually seen as integral part of any investment portfolio, have been dubbed risky by market experts for the year ahead, although the market remains a viable one for long term investing.
For now the real estate market remains cool and many investors have no profits to re-invest in their next projects. On the one hand, they dare not borrow money from banks due to high interest rates, and on the other hand, they still have to wait for the market to bounce back to sell property units off.
Bank rates are likely to remain high until the end of the first quarter, making it hard to develop and sell projects this year generally. That also means new sources of revenue and profit will be hard to come by in 2011.
Meanwhile, the market is increasingly fierce. Investors are trying to attract customers by assisting them in buying houses. Hoang Anh Gia Lai., for instance, has just cooperated with VPBank to lend buyers of Thanh Binh’s housing project up to 70 per cent the houses’ price, along with giving them preferential interest rates for the first two years.
Besides Thanh Binh, Hoang Anh Gia Lai is considering “softening” the price for its two other housing projects as well.
In order to attract consumers, some investors will receive only 30 per cent of the house’s value on delivery while the remaining 70 per cent can be paid off later, instead of demanding up to 90 per cent as before.
In this competition, the advantage belongs to major companies which have sufficient financial ability to support customers. Some smaller firms may consider issuing additional shares to raise funds, which would definitely cause a dilution effect for real estate stocks.
For these reasons, market analysts said this year was not an appropriate time for investing in real estate stocks.
Nguyen The Lu, general director for Saigon Asset Management (SAM), which also manages a real estate investment fund, said his fund this year had to focus on middle-cap real estate companies with middle-class projects, instead of investing in big companies with high-class ones as before.
Recently, SAM had raised its stake in mid-size real estate companies like NBB Corp. to 16 per cent from 10 per cent, and in Savimex to 24 per cent from 18 per cent and purchase stake of D2D Company and C21 Company.
However, Lu also indicated that there could be more investment flow coming into real estate market from Asia, which was expected to animate the sector within the next two or three years. That means real estate stocks would remain attractive for long-term investing.