Like many hoping for easy cash in Vietnam’s property market, Nguyen Thu Huong borrowed 500 million dong (US$24,000) from a bank in April to buy a new apartment that she didn’t need and planned to flip. The only question, she thought, was how big the profit would be.
Five months later, she is lucky if she can sell it at all.
Vietnam’s real-estate market has stalled, beset by soaring inflation, sky-high interest rates and sharp lending curbs. Developers are halting projects or delaying new ones. Prices have fallen from dizzying heights in 2006 and 2007 and brokers are bracing for more losses ahead.
Photo: Reuters
“The real-estate market is at its ugliest ever,” said Doan Nguyen Duc, chairman of Hoang Anh Gia Lai Joint Stock Co and one of Vietnam’s best known property millionaires. “I expect the market to continue to fall much deeper.”
Rewind just four years and speculators were lining up to buy condos as developers built entire communities in one of the world’s fastest-growing economies, stirring hope the Communist-run country of nearly 90 million people would soon enter a new era of prosperity.
Now, empty office towers and concrete shells of apartment complexes rise half empty from congested streets, threatening segments of the banking sector, where about 10 percent of bad debts are officially listed as property-related.
The actual amount could be higher and untold billions of dollars in other loans have property as collateral.
The slowdown will likely complicate an economic recovery that many economists had hoped was finally turning a corner after nearly a year of double-digit inflation.
“My fear is that we’ve had the collapse of the housing market, but we haven’t had the Lehman Brothers yet,” said Jonathan Pincus of the Fulbright Economics Teaching Program in Ho Chi Minh City.
Huong and other consumers are learning the hard way that property prices can move in both directions, even in Vietnam.
“We could have sold the flat immediately for a 200 million dong profit, but we hoped to get 500 million dong by waiting a few months,” said Huong, who works in Hanoi at a government agency involved in the real-estate sector.
Meanwhile, she keeps doling out US$360 a month in interest, a large sum in a country where the average annual income is about US$1,100. A second installment of 500 million dong is due soon.
“I can’t afford to make the payments anymore,” she said.
Developers are feeling the pain, too. In its campaign to tame Asia’s highest inflation, the State Bank of Vietnam, the central bank, this year hiked interest rates and ordered banks to limit their level of debt in “non-productive” sectors, including property, to 16 percent of all loans by year-end.
That effectively dammed a river of cash that had become the life-blood of many property developers, as demand fell and advance payments from customers dried up.
When the market boomed, developers sourced about 20 percent of their cash from bank financing and 80 percent from advanced payments. However, that ratio had flipped by last year, said Nguyen Xuan Thanh, a fellow at Harvard’s Kennedy School of Government and head of the public policy program at the Fulbright School.
“Basically these developers cannot sell,” he said.
Hoang Anh Gia Lai (HAGL), one of the country’s biggest diversified conglomerates, anchored by a large property development business, is one example.
After becoming in March the first Vietnamese firm to list on the London Stock Exchange, it reported negative earnings before interest and tax in the second quarter of this year after several consecutive quarters in the black.
The firm, strong in mid-end residential property in the bustling commercial capital of Ho Chi Minh City, has been “hard hit” by the property downturn and was delaying at least three projects, the brokerage Saigon Securities Inc said in a report.
HAGL has now decided to shift away from its reliance on property. Last year, it derived 90 percent of its income from the sector. By 2014 that will be 20 percent, said Duc, the chairman.
“There won’t ever be a golden age for real estate like in 2007,” he said, when margins were a “ghastly” 200 percent to 300 percent.
Peter Ryder, chief executive of Indochina Capital, which manages three private, closed-ended real-estate funds with over US$2 billion of projects under management and development in Vietnam, said distressed investment opportunities were starting to appear.
“Either they can’t get additional money from the banks because banks have been told ‘no more money for real estate,’ or they can’t afford to pay the interest rate on new loans, let alone existing debt that’s in place,” he said.
In the past four years, credit growth averaged 35 percent a year. That added almost US$100 billion in new credit, almost equal to the country’s economic output last year. It also inflated Vietnam’s credit-to-GDP ratio to a high 125 percent, the Asian Development Bank says. Non-performing loans also rose.
At the end of last year, the central bank reported the non-performing loan ratio at 2.16 percent. Two weeks ago, it said the rate by July was 3.04 percent — an increase of over 40 percent. Central bank governor Nguyen Van Binh said the rate could hit 5 percent by year’s end.
Credit-ratings agency Moody’s Investors Service said on Sept. 1 it believed Vietnam bank asset quality to be “far worse” than officially reported. Analysts agree and some say the true figure might be higher.
Real estate is only one part of the bad-debt picture. Inefficient, indebted state-owned enterprises continue to rack up hefty losses.
However, after a speculative boom that inflated prices to what HAGL’s Duc called “unreasonable” levels and led many SOEs to set up real-estate arms, property loans may be the most toxic.
No bank has been singled out as in trouble, but those with real-estate developers as major stakeholders are being watched closely. They had channeled vast quantities of capital into property projects under various guises.
State media say some big banks have overall bad-debt ratios above the average. At the biggest bank, Agribank, for instance, it is 6.67 percent, most of which is in real estate, Vn-Express.vn reported.
Late last month, a report by Credit Suisse outlined risks to the corporate and banking sectors and came to this conclusion in a note to potential investors: “We recommend avoiding financial services and property as these sectors are at the heart of Vietnam’s critical debt levels.”
The central bank is working on a solution. It has plans to help 10 small banks with liquidity problems, although none have been named publicly, and is openly discussing possible mergers.
“The danger is that if the government cannot force the banks to restructure, or at least to recover as much as possible from their bad debt, then there will be a problem ... Politically, they cannot let the banks fail,” Thanh said. “They still can somehow fix the problem, but they have to do it now.”
‘SWASTICAR’: Tesla CEO Elon Musk’s close association with Donald Trump has prompted opponents to brand him a ‘Nazi’ and resulted in a dramatic drop in sales Demonstrators descended on Tesla Inc dealerships across the US, and in Europe and Canada on Saturday to protest company chief Elon Musk, who has amassed extraordinary power as a top adviser to US President Donald Trump. Waving signs with messages such as “Musk is stealing our money” and “Reclaim our country,” the protests largely took place peacefully following fiery episodes of vandalism on Tesla vehicles, dealerships and other facilities in recent weeks that US officials have denounced as terrorism. Hundreds rallied on Saturday outside the Tesla dealership in Manhattan. Some blasted Musk, the world’s richest man, while others demanded the shuttering of his
ADVERSARIES: The new list includes 11 entities in China and one in Taiwan, which is a local branch of Chinese cloud computing firm Inspur Group The US added dozens of entities to a trade blacklist on Tuesday, the US Department of Commerce said, in part to disrupt Beijing’s artificial intelligence (AI) and advanced computing capabilities. The action affects 80 entities from countries including China, the United Arab Emirates and Iran, with the commerce department citing their “activities contrary to US national security and foreign policy.” Those added to the “entity list” are restricted from obtaining US items and technologies without government authorization. “We will not allow adversaries to exploit American technology to bolster their own militaries and threaten American lives,” US Secretary of Commerce Howard Lutnick said. The entities
Minister of Finance Chuang Tsui-yun (莊翠雲) yesterday told lawmakers that she “would not speculate,” but a “response plan” has been prepared in case Taiwan is targeted by US President Donald Trump’s reciprocal tariffs, which are to be announced on Wednesday next week. The Trump administration, including US Secretary of the Treasury Scott Bessent, has said that much of the proposed reciprocal tariffs would focus on the 15 countries that have the highest trade surpluses with the US. Bessent has referred to those countries as the “dirty 15,” but has not named them. Last year, Taiwan’s US$73.9 billion trade surplus with the US
Prices of gasoline and diesel products at domestic gas stations are to fall NT$0.2 and NT$0.1 per liter respectively this week, even though international crude oil prices rose last week, CPC Corp, Taiwan (台灣中油) and Formosa Petrochemical Corp (台塑石化) said yesterday. International crude oil prices continued rising last week, as the US Energy Information Administration reported a larger-than-expected drop in US commercial crude oil inventories, CPC said in a statement. Based on the company’s floating oil price formula, the cost of crude oil rose 2.38 percent last week from a week earlier, it said. News that US President Donald Trump plans a “secondary