Over US$34 billion set to pour into Vietnam’s real estate market this year

Over US$34 billion set to pour into Vietnam’s real estate market this year

The credit quality of real estate firms is at a good level with financial leverage below 1.5x.

During the first seven months of 2022, over VND420 trillion (US$18 billion) was pumped into the real estate market. The figure could be raised to VND800 trillion ($34 billion) by the end of the year in case of favorable conditions.

Investors looking at a real estate project in Me Linh District, Hanoi. Photo: Pham Hung

Economist Can Van Luc, a member of the National Financial and Monetary Advisory Council, shared the view at a real estate forum held on August 17, noting the figure is huge compared to total investment capital for the economy.

According to Luc, while transaction activities have been subdued in recent months, this would pose a golden opportunity to restructure the market for more sustainable growth.

“In the past, real estate was widely seen as the first option when people explore fields to invest in, and that is a huge risk to the economy,” Luc said.

Sharing Luc’s view, Chairman of BHS Group Nguyen Tho Tuyen noted the market is going through a cleansing phase, for which investors have now become more cautious before making any purchasing decision.

“The playground is not for everyone as before,” he said.

Statistics from the State Bank of Vietnam (SBV) revealed as of June 30, 2022, total outstanding loans in the property market rose by 14% against last year to VND2,360 trillion ($100.8 billion).

The rate is higher than the average credit growth of the economy at 9.35% in the same period, in which credit in the real estate accounted for 20.74% of total loans in the entire economy, a slight increase from the 20% rate in the same period last year. Loans for housing purchases made up 67% of the total, or VND1,580 trillion ($67.51 billion), while real estate investment accounted for 33%, or VND780 trillion ($33.3 billion).

Meanwhile, the number of new real estate firms set up in the seven months stood at 6,000, up 23.7%, while 1,570 others resumed operation.

Foreign investors also injected over $2 billion into the real estate market for both new and existing projects, accounting for 16% of total FDI commitments.

Luc noted corporate bond issuance from real estate firms reached VND45 trillion ($1.92 billion) in the January-July period, down 40% year-on-year and accounting for 22.4% of the total.

In August, the Government is scheduled to issue revised Decree No.153 regulating the trading of corporate bonds, for which Luc anticipated the corporate bond market may expand by 30-35% this year.

Meanwhile, CEO of FiinGroup Nguyen Quang Thuan noted that 54 real estate public firms have total outstanding loans of VND435 trillion ($18.6 billion), or 50% of credit in the sector, not to mention credit from foreign sources of nearly $4 billion.

“Amid ongoing turbulence in the Chinese real estate market, international investors are still keen on Vietnam,” he added.

Thuan acknowledged the fact that the size of corporate share issuance in the local real estate market has declined due to tightening measures from the authorities, but the market outlook remains promising.

“The credit quality of real estate firms is at a good level with financial leverage below 1.5x. If including the leverage from business partners, this rate would be around 1x, significantly lower than in the Chinese market. In addition, the consolidated profit of Vietnamese property developers is much higher than their Chinese peers, which put them in a better position in case of external shocks,” Thuan said.

An imbalance between supply and demand

Director of CBRE Vietnam Duong Thuy Dung expressed concern over the imbalance between supply and demand in the market, in which there has been a severe lack of budget housing projects, especially in Hanoi and Ho Chi Minh City.

According to Duong, in 2022, there have been no new budget housing projects in Hanoi, and  Ho Chi Minh City would undergo the same situation in the next three years.

Meanwhile, supplies of real estate units in Hanoi have now shifted from the West to the East,  where 63% of the new projects are located.

"Housing prices are rising as most of the new supply is in the mid to mid-luxury segment," Duong said, noting the average prices in Hanoi rose by 7% per year over the past five years and called for the Government’s efforts to provide incentive policies for the development of low-to mid-budget housing projects.

Hanoi Times