New ways needed to thaw frozen property market

Experts and investors said the real estate market has frozen and a new approach is needed to undo the damage done by the economic slowdown.

According to many analysts, a rebound for the market was not in sight early this year, because of a decline in investment by companies and banks aiming to prevent inflation.

Previously, commercial banks could use 40 percent of their short-term deposit funds to make medium-and long-term loans, with most loans being invested in real estate. But the rate has been reduced to 30 percent.

Multi-storey apartment blocks under construction in Nha Be District, HCM City. Faced with a frozen real estate market, investors are seeking solutions by investing in medium income projects.(Photo: SGGP)

Problems in the market were also caused by oversupply.

According to market research company, VietRees, existing real estate projects can provide as many as 9,000 apartments this year, and double that number in 2011, exceeding demand.

Seeking solutions

Many real estate companies have tried to find their own way out. Most have resorted to building medium-cost flats that don’t require huge investment, for people with medium incomes.

For instance, two years ago, Nam Long Apartment Development Corporation has been successful in building Ehome apartment building in District 7, Ho Chi Minh City and selling them for just VND600 million (US$31,500) each. Real Estate Le Thanh Company also constructed similar flats in the city's Binh Tan District and has sold all of them.

Now, Van Phat Hung JS Co. followed them by building apartment blocks in Binh Tan District and sell an 50 square meter apartment for VND12 million ($631) per square meter on average.

Issuing project bonds is another solution for developers. 

In 2008, Saigon Thuong Tin Real Estate JS Company (Sacomreal) issued project bonds worth VND750 billion ($39 million) at an interest of 12 percent per year to seek capital for the construction  of its Phu My apartment block in District 7.

Each bond holder is offered the right to buy one apartment at a discount of 8 percent of the value of the apartment.

Just three days after issuance, the company collected the capital it needed.

Construction of the Sacomreal block called Belleza has been completed and on January 23, 2010, when the company called for buyers, 75 percent of the bond holders paid deposits on apartments.

Dang Hong Anh, chairman of the Management Board of Sacomreal, said: “To be successful in an issue of project bonds to mobilize capital, the issuing company must satisfy two factors: first, being prestigious and reliable to customers; and second, assuring potential buyers that investing in such bonds would be more profitable than investing in other projects.”

By Luong Thien – Translated by Truc Thinh

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