Real estate sector not yet out of woods
Real estate sector not yet out of woods
Despite early indications that market sentiment is improving after a lackluster period of several years for the real estate sector, a number of key areas should be examined before champagne corks are popped.
The comment was made by to the latest report from Jones Lang LaSalle Viet Nam, a global real-estate services firm.
The report notes that inflation in September was 6.3 per cent, far lower than its peak of 22 per cent in September 2011.
Interest rates fell from 15 per cent in early 2012 and stand at 7 per cent, with further decreases on the horizon, according to the report.
Foreign direct investment has reached US$15 billion, up 36.1 per cent year-on-year, although considerably behind the dizzy heights of $71 billion registered in 2008.
For the first time in many years, the country has registered a small but significant trade surplus which stands at $124 million, and GDP growth stands at 5.14 per cent, with steady improvement quarter-on-quarter.
The VN Index has seen a dramatic increase of nearly 34 per cent over the past 12 months.
Disbursements into the country are ranked 10th in the world, reaching $8.6 billion in the first nine months, while the foreign exchange rate between the US dollar and Vietnamese dong is stable at about 21,100.
All of these factors paint a much improved and a considerably more stable economic picture, the report said.
"The banking sector continues to attract all the headlines and will prove to be the single most critical factor in determining the speed of the recovery." the report said.
"If the current level of non-performing loans can be reduced and absorbed by the newly formed Viet Nam Asset Management Company, we will see a faster momentum in the recovery of the market as much needed credit will start being released," it said.
The big question is whether the structure of VAMC will prove an effective and adequate vehicle in dealing with bad debt, according to the report.
The report notes that the property market experienced a meteoric rise and fall in the past 15 years, which has seen many investors, developers and owners make and lose considerable sums of money.
It is unlikely the property market will see these peaks and troughs again in the near future.
"The downturn was inevitable as the speed and rate of growth was unsustainable and we are now seeing a correction in the market, resulting in more realistic and affordable prices and rentals being achieved," said Stephen Wyatt, country manager of Jones Lang LaSalle Viet Nam.
"However, many owners and developers consider their property values have not been affected by the downturn and continue to market their properties based on historic values," he added.
The proposed loosening of legislation on foreign ownership will assist the property market, provided that the legislation is clear and transparent and is in line with other countries in the region.
However, local parties need to understand that foreign investors will only invest in projects that are commercially viable and fit their investment strategy, based on medium – to long-term objectives.
The report concludes by saying there was more positive than negative news and the economy was in a much better position but that challenges remain.
It pointed out that the banking sector will need to restructure and lower the level of non-performing loans and start to increase lending.
Economic conditions will need to remain stable and show steady improvement, with lower inflation, interest rates and a stable VND/US$ exchange rate, it added.
Legislation will need to continue to loosen, attracting further interest from foreign investors.
The formation of the Trans Pacific Partnership (TPP) and ASEAN trade agreements will further boost Viet Nam's property market revival going forward, the report noted.
"The overall message is that the champagne can be put on ice, but it is still too early to open it," the report said.
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