Van Phat Hung Joint Stock Co. is trying to lure potential investors by promising a 15 percent profit on the total value of condos of La Casa complex in HCM City's District 7.

Situated at the corner of Hoang Quoc Viet and Dao Tri streets, the project comprises seven blocks with 35 stories each, offering over 1,900 flats besides restaurants, hotels and shopping centers.

According to the investor, the commitment will be applied if buyers follow payment progress as required in the contract and pay 60 percent of the value of the condo. The enterprise will refund investment capital and profits for buyers as pledged but not apply the policy to those receiving the condo or transferring it.

Prices of La Casa condos average out at 21 million dong per square metre and buyers will have to pay 15 installments within 40 months after signing contracts. Investors expect to hand over the project to customers from September 2013.

Earlier, Novaland launched a programme to give buying rights for customers of Sunrise City project in District 7. Accordingly, homebuyers will place a deposit equivalent to 20 percent of the value of the flat on contract signing, 60 percent more when receiving it and try to live there within two years. After that, they will either settle the final 20 percent if they want to own the flat or return it and take their money back.

Meanwhile, some investors also pledge to re-lease condos or villas to convince customers to buy their products.

Him Lam Land Co. has launched the sale of serviced apartments of Him Lam Riverside project in District 7 and committed a monthly income from $1,000-1,500 in two years for customers through a leasing programme.

Toan Thinh Phat Investment Architecture Construction Corp. will also continue the leasing programme to the second sale of The Pegasus Residence project in Bien Hoa City, Dong Nai Province. The investor is seeking tenants for the villa village such as expats working in the city.

For Saigon Pearl luxury apartment project in HCM City's Binh Thanh District, the investor has offered a flexible payment policy allowing customers to move into a flat after paying just 50 percent of its value. The homebuyers will pay the rest of the value within 15 months or ask the investor to help them put the flat up for lease.

Industry insiders said the tough market has forced most enterprises to increase their competitiveness. However, as demand is still low, investors have to improve services and keep offering deals to lure customers.

The Saigon Times Daily - September 27, 2011

Hard lessons for Vietnam as property slumps

Like many hoping for easy cash in Vietnam's property market, Nguyen Thu Huong borrowed 500 million dong ($24,000) from a bank in April to buy a new flat 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.

"The real estate market is at its ugliest ever," said Doan Nguyen Duc, chair 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 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 may 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, Dean of the Fulbright Economics Teaching Programme in HCM City, referring to the September 2008 collapse of the once-mighty US investment house.

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 ($9,600) profit but we hoped to get 500 million dong ($24,000) 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 7.5 million dong ($360) a month in interest, a large sum in a country where the average annual income is about $1,100. A second installment of 500 million dong is due soon.

"I can't afford to make the payments anymore," she said.

Starved for capital

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 end of the year.

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. But that ratio had flipped by 2010, said Nguyen Xuan Thanh, a fellow at Harvard's Kennedy School of government and head of the public policy programme at the Fulbright School.

"Basically these developers cannot sell," he said.

Hoang Anh Gia Lai, or 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 HCM 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. In 2010 it derived 90 percent of its income from the sector. By 2014 that will be 20 percent, said Duc, the chair.

"There won't ever be a golden age for real estate like in 2007," he said, when margins were a "ghastly" 200-300 percent.

Peter Ryder, chief executive of Indochina Capital, which manages three private, closed-ended real-estate funds with over $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 $100 billion in new credit, almost equal to the country's 2010 economic output. 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 September 1 it believed Vietnam bank asset quality to be "far worse" than officially reported.

Analysts agree and some say the true figure may be higher.

Real estate is only one part of the bad-debt picture. Inefficient, indebted state-owned enterprises such as the near bankrupt shipbuilder Vinashin continue to rack up hefty losses.

But 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.

The National Financial Supervisory Committee, which advises the government, was quoted in the Saigon Economic Times on September 19 as saying about half of all non-performing loans may have to be written off, with real-estate loans making up the bulk.

Most at risk are a handful of small banks. The biggest banks have relatively low exposure to real estate, averaging around 10 percent.

Many small banks have 30-40 percent of their loan books in property, and some even have over 50 percent, a state newspaper quoted Le Xuan Nghia, vice chair of the National Financial Supervisory Committee, as saying this week.

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 Chair Nguyen Ngoc Bao says is in real estate, reported.

House of cards

But two issues compound concerns about the problem: an acute lack of transparency and the open secret that many banks will do just about anything to suppress their bad debt ratios.

If banks fail to meet the central bank's 16 percent target for "non-productive" sector loans, they will see their capital adequacy requirements doubled and they will be barred from opening new branches.

Knowing they can't reach the targets legitimately, analysts suspect some banks are creatively rolling over or re-categorising an unknown quantity of Vietnam's real-estate debt.

"We think the banks are mortally afraid to call in bad debt because they have to report it and they don't have the money to increase their capital adequacy ratios," said one seasoned Vietnam property.