Real estate adapting to fresh challenges
Real estate adapting to fresh challenges
Real estate businesses are tackling new challenges head on by extending debt, converting loan packages with new interest rates, and paying bonds with real estate.
Data from the Ministry of Construction shows that residential construction activities showed signs of slowing down significantly in the third quarter. The number of licensed and eligible projects for sale decreased by 8 and 23 per cent respectively over the same period last year.
At the same time, the domestic capital market is still congested from bond and banking channels, accompanied by a relatively high home loan interest rate of 11-14 per cent per year, slowing down the cash flow.
On December 5, the State Bank of Vietnam (SBV) decided to relax the credit growth room throughout the system, raising the credit growth rate for the whole year to 15-16 per cent, compared to 14 per cent at the beginning of the year.
However, it is not known how the new credit room will be distributed to businesses and homebuyers, with the end of the year is approaching. Experts say it is important now to restructure businesses and strengthen the confidence of investors and buyers in the market.
The frozen liquidity pressure is forcing many units to take the initiative in handling plans to avoid the risk of a more serious crisis. Some businesses are having to take painful measures to survive, such as cutting down on employees, postponing new investment, halting capital increase, and reducing or delaying wages.
According to economist Dr. Dinh Trong Thinh, it is important in the current context to strengthen market confidence so that both supply and demand sides are maintained.
“Businesses and investors need to be transparent about their project operation information, keep commitments on schedule, and improve product quality,” Thinh said.
Thinh added that although the SBV has decided to loosen the credit room, the real estate market is still subject to limitations and restrictions from banks.
“Therefore, in order to borrow money from banks at this time, businesses need to prepare secured assets and profitable financial statements with no bad debts, then they may be approved by the bank for a loan,” Thinh said. “Enterprises should not expect too much or depend too much on banks, but must know how to proactively and restructure their businesses.”
Real estate bonds are currently the focus of the market. By the end of October, the value of outstanding real estate bonds was VND445 trillion ($19.34 billion), accounting for nearly 34 per cent of the total value of outstanding individual bonds and accounting for nearly half of the total value of bonds.
Updated data from FiinRatings shows that the total value of real estate bonds that will mature from November 15 to December 31 this year sits only at VND21.8 trillion ($948 million).
Notably, the market witnessed many different forms of debt restructuring and was increasingly applied by issuers. Some of the popular options recognised by FiinRatings include the extension of the principal payment term with a new interest rate, conversion into a long-term loan contract with a new interest rate, and conversion to real estate products.
According to FiinRatings’ analysis team, this is a positive sign for the current liquidity problem of the market because this measure helps to solve the problem of short-term cash flow pressure in short term in front of the demand wave from prepayment of bondholders.
“However, we expect that the credit quality or solvency of the issuer needs to be determined specifically, taking into account new risk factors such as when bondholders are converted to respective real estate products, but if those projects do not have enough legal procedures,” FiinRatings said.
According to the Hanoi Stock Exchange, Nova Real Estate Investment Group announced the result of its early redemption of corporate bonds with a total par value of issue at $43.4 million. This is a batch of bonds with a term of 12 months with a maturity date of December 24. Before that, the company took part in many rounds of buying back bonds before maturity, with a total value of more than $50 million.
From November 24, Hung Thinh Land started to buy back all 4 million bonds issued the previous year, with maturity on December 28, 2023. It is expected that Hung Thinh Land will imminently complete the purchase of these bonds, worth VND400 billion ($17.4 million).
Another real estate company, Phat Dat Company, has bought almost VND339 billion ($14.7 million) of corporate bonds since the end of October. Currently, Phat Dat’s bond debt balance has dipped to VND2.5 trillion ($108.7 million).
Bond buybacks have also been made at other investors such as Sunshine Homes, Gotec Land, An Gia, and Nam Land.
Truong Hien Phuong, senior director of KIS Vietnam Securities said, from an economic perspective, the proposals to extend or convert bonds to real estate products recently still brings more benefit than previous contracts between customers and bond issuers, while still securing the assets for bondholders.
“In return, efforts to overcome difficulties will erode the profits of the business. This is the story of businesses that have to sacrifice profits to grow in the long run,” Phuong said.
Phuong emphasised that real estate businesses are facing difficulties in raising new capital from banks and bond issuance, while cash flow from selling products also slows down. This is a double challenge for real estate developers.
“For an open-minded group of investors, aforementioned solutions will be easily approved once the business and bondholders negotiate appropriate terms, especially for the large-scale and long history developers. If businesses and bondholders meet the common point on interest rates, plus discount incentives, most investors will agree, without many worries,” Phuong commented.
