Vietnam hastens measures to shore up property market, fuelling hopes of a faster rebound

[HO CHI MINH CITY] Vietnam’s property market remains in a slump, with developers still reeling from a liquidity crunch, soaring interest rates, tighter rules on private placement bonds, and a crackdown that has led to the arrest of several high-profile business executives.

The government has recently stepped in with a slew of measures to boost market sentiment, such as loosening corporate bond regulations and rolling out a massive 120 trillion dong (S$6.82 billion) low-interest credit package for social housing projects.

In March, the government issued a resolution ordering ministries to ease a credit crunch and legal entanglements for property developers. The State Bank of Vietnam was asked to consider directing lenders to delay loan repayments or restructure bad debts, as well as create favourable conditions for investors and home buyers to access new loans.

Other measures include revising existing laws on land and real estate taxes, cutting key policy rates twice to reduce pressures on lending rates at commercial banks, and extending tax and land rent payment deadlines in 2023.

According to data from the Ministry of Construction, the number of newly-licensed commercial housing projects in 2022 fell by 48 per cent year on year. Existing projects were down by half, while completed projects were down 45 per cent from the previous year.

Transactions in Vietnam’s two largest cities – Ho Chi Minh City and the capital Hanoi – took a big hit last year. Data from consultancy CBRE Vietnam showed that purchases of condominium units in Ho Chi Minh City fell for a third straight quarter in Q1 2023 to a record low of 960, compared to 1,247 a year earlier.

Over in Hanoi, condominium sales fell to 2,045 units in Q1 – roughly a third of the five-year quarterly average of 6,000 units.

Analysts said they expect the current downturn in the real estate sector to ease sometime between the end of this year and the middle of 2024.

Nguyen Quoc Anh, deputy chief executive of Vietnamese property portal Batdongsan.com.vn, a unit of Singapore-based PropertyGuru, said: “With some significant policies introduced in Q1 2023 and set from Q2, we expect the market to show a reversal after two to three more quarters, similar to what happened during the last property crisis in 2013 when major policies took effect.”

In a Vietnam News report in March, Vietnam Association of Construction Contractors chairman Nguyen Quoc Hiep was quoted as saying that a rebound would not happen until the end of 2024, when the revisions of existing laws on land, housing and real estate business are clarified.

The Vietnam Bond Market Association estimates that nearly 290 trillion dong in corporate bonds will mature this year.

According to figures from the Hanoi Stock Exchange, from September 2022 to January this year, there were 34 property companies that sought a delay in redeeming bonds or paying interest due to cash flow problems. 

Data from the Ministry of Planning and Investment showed that there were just 338 newly-registered real estate companies in the first quarter of this year, with a total registered capital of 18.5 trillion dong. This represented a 65 per cent decline from the same period in 2022. About 150 companies were dissolved, a rise of 17.7 per cent from the year-ago period.

Mergers and acquisitions

There are pockets of opportunities in any crisis, and global investors are taking a close look at Vietnam’s capital-starved property market as they search for suitable merger and acquisition (M&A) deals.

In 2022, the total transaction volume of officially announced real estate M&A deals in Vietnam reached a five-year high of more than US$1.7 billion, according to data compiled by Cushman & Wakefield.

The real estate sector remained Vietnam’s second-largest source of foreign direct investment, accounting for 14.1 per cent of total registered foreign investment capital in Q1 2023.

In March this year, it was reported that Singapore’s CapitaLand Group was in talks to acquire assets worth roughly US$1.5 billion from Vietnam’s largest conglomerate Vingroup. If this deal is reached, it would represent one of the largest real estate transactions in South-east Asia in many years.

Duong Thuy Dung, executive director and national head of professional services at CBRE Vietnam, said at a recent event that there has been a significant increase in the number of foreign investors that are actively looking for potential deals in Vietnam.

About half of these investors are from more distant markets such as South Africa and Saudi Arabia, while there are the usual investors from regional countries such as Singapore and Hong Kong, she added.

Observers said that Vietnam’s political stability, favourable geographical location, rapid urbanisation and a fast-growing middle class are among the main factors attracting these overseas players to the local property market.

But CBRE’s Dung said that large transfer deals or major project sales with foreign investors would take more time to materialise. This is due to potential mismatches in price negotiations, complex financial transparency requirements, and an inconsistency in the current legal documents regulating the local property sector, he added.