As Vietnam’s first property boom crashed around him, US developer Edward Chi kept promising investors their flashy apartments were on track. The businessman even told them he would sell his California properties to pay them back if construction stopped on projects that were heavily marketed by a well-known US real-estate company.
However, Chi ducked out of a tense meeting with the prospective home owners last year and never returned, leaving the rusting foundations of an apartment block and at least 128 angry investors, many who had already put down more than US$150,000 from life savings or bank loans. Police say Chi has left the country and is unreachable.
Chi was one of scores of developers drawn to Vietnamese property in the late 2000s, when communist authorities encouraged state-owned banks to hand out easy credit to investors and developers as part of an effort to stimulate the economy, resulting in sharp land price increases. It was a new phenomenon for Vietnam, which only began opening its centrally planned economy in the 1980s. Many of the developers were state-owned enterprises that had no experience in property. Despite hopes of bringing home ownership to the masses, buyers were often speculators, seeking to buy off the plan and realize a quick profit.
“Suddenly everyone stopped manufacturing shoes, widgets or whatever and became developers overnight,” said Marc Townsend, managing director of the Vietnam unit of CB Richard Ellis Group, a global real-estate firm. “And the remains are all around town.”
As countless other countries have learned, house prices can drop as quickly as they rise. Vietnam’s did so with a vengeance in late 2010 as the economy slipped. Prices are down by 50 percent in some parts of the country, and no one is predicting a rebound. Banks are weighed down with bad debt, much of it secured against property, and are reluctant to lend, strangling growth in the once red-hot economy.
With half-finished skyscrapers and housing complexes scarring parts of Hanoi and elsewhere, tales of runaway developers are emerging in online forums and in the tightly controlled media, opening up a new avenue of anger at authorities who oversaw the rampant speculation.
“We were cheated and also feel disappointed with authorities, who have shown no sign of investigating the case,” said Tran Thanh Hai, who made an initial payment of US$180,000 to buy a 210m2 unit in Chi’s flagship Tricon Towers project on the western outskirts of Hanoi.
Real-estate agents fear other property investors are in for a nasty surprise as inexperienced developers and poorly regulated banks with loans secured against failing projects get squeezed further. The government formed an asset management company to buy the bad debts and take them off bank balance sheets, but few in the industry believe it has sufficient resolve or power to fully address the issue.
The banks, many of which are run by politically connected chairmen and shareholders, appear unwilling to take losses, preferring to fudge the extent of their exposure and bet a global economic recovery will lead to asset price increases. Two years after the crisis became apparent, no bad loans are known to have been sold and there has been no accurate reckoning of the amount of debt in the system.
“To make the changes you need to recognize there is a problem and here they don’t realize there is a problem,” said Sameer Goyal, the financial and private sector coordinator for the World Bank in Vietnam.