Potential risks in Ho Chi Minh City’s real estate market

	Real estate inventory needs to be exact
	Major trends of the real estate market in the second half of 2019
	Limited supply hits real estate market

There are many potential risks in HCM City’s real estate market. Photo T.D

Falling supply of projects

Mr. Le Hoang Chau, HoREA Chairman, expressed his concern about the decline in the scale of the real estate market of the city. That is the decrease in the supply of projects and the supply of housing products, especially the types of commercial and socialapartments with affordable prices.

Specifically, in the first 6 months of 2019, there were only 3 commercial housing projects proposed by HCMC Department of Construction to recognize investors with the scale of 924 apartments, reducing 16 projects (down 84.2%) compared to the same period in 2018. The Department of Construction also proposed the HCMC People's Committee to approve the investment of 10 commercial housing projects, reducing 46 projects (down 82.2%) compared to the same period in 2018.

In the past 6 months, there were only 24 projects eligible to sell houses in the future, with a total of 7,313 apartments, down 10 projects (29.4%), down 2,336 units (down 24.2%) compared to the same period in 2018. Ofwhich, the luxury apartment segment decreased by 43.8% (2,227 units compared to 3,965 units in the same period in 2018); affordable apartments decreased by 34.7% (1,249 units compared to 1,914 units in the same period in 2018).

The decline of the real estate market affects the city's budget revenue. In 2018, the budget revenue from land was about 22,600 billion VND, accounting for 9.32% of the total budget revenue. Compared with 2017, decreasedabout VND 4,570 billion (down 16.8%); the fee of project land use reduced by VND 4,037 billion (down 22.5%). The result of city budget collection in the first 6 months of 2019 has not reached 50% of the plan. Land use fees in the first 5 months of 2019 decreased by 60% compared to the same period in 2018.

In addition, the State Bank is implementing a roadmap to gradually reduce credit to the real estate market, leading to enterprises meeting difficulties in finding other sources of capital to replace a part of credit capital. In addition to expanding cooperation with foreign enterprises (FDI), or seeking capital on the stock exchange, real estate enterprises are choosing solutions to issue corporate bonds to supply capital.

In the first 5 months of 2019, real estate, construction and infrastructure enterprises have issued corporate bonds worth up to VND 16,230 billion, accounting for 27% of the total value of issued bonds, standing at second position. Even real estate enterprises have issued bonds with very high interest rates up to 12-14.5% per year, double the savings interest rate.

Difficulties need to be solved

Before this situation, HoREAsent a document to Ho Chi Minh City People's Committee about some difficulties and risks of real estate enterprises in the first 6 months of 2019 and proposed to remove them.

The Association pointed out the fact that the investors spent huge costs to compensate and on project clearance, but they could not complete legal procedures, or could not implement the project, which led to risks of law.

In case the enterprise has spent money to clear the ground, implement steps to prepare investment, pay loan interest, pay debts and expenses for enterprise management, project management, but still not eligible for Project implementation will create financial and credit risks. HoREA said that if this happens, businesses will fall into extremely difficult circumstances, even facingrisks of bankruptcy.

The risks of brand reputation of businesses and missing business opportunities are also difficulties that real estate enterprises in HCMC are facing. Enterprises cannot predict the legal risks, the implementation time of administrative procedures, thus failing to comply with commitments to customers under signed contracts.

Enterprises have suffered financial losses and have been damaged in brand reputation, especially for customers, investors and banks. Consequently, businesses will miss business opportunities with the damage unable tobe measured.

Accordingly, HoREA has made proposals related to land acquisition, starting construction of works after the project owner has been granted a construction permit. Besides, the process and procedures for calculating project land use fees and the roadmap to limit credit to the real estate market are also concerned by this association.

HoREA also requires to clearly define the tasks of the Department of Planning and Architecture in considering the detailed planning project of the scale of 1/500 proposed by investors and at the same time looking forward to the time to recognize the project investor, having a residential land fund, agricultural land intermingled with land, roads under state management, being congested due to the Housing Law within 7 days.

In addition, HoREA proposed the HCM City People's Committee to direct the Department of Finance to soon develop the principles of land valuation criteria for real estate business projects, commercial housing projects, ensuring the calculation of land use fees are reasonable and avoiding loss of state budget. At the same time,HoREAalso proposed the HCM City People's Committee to direct the Department of Finance and the Department of Natural Resources and Environment to complete the process and administrative procedures for calculating fee of land usefor commercial housing projects, in order to save time and increase the revenue for State budget.