Anxiety in Vietnam

Construction delays may be the only hope for property speculators. By Post Reporters

As global real-estate firms including those from Thailand put their investment plans for Vietnam on hold, the pain of a market crash is growing more evident in the once-booming economy as buyers scramble for cover and prices dive.

The region's newest "Tiger" economy was roaring just a year ago with its equity market the best performer in the world and economic growth rates rivalling those of China and India, and the envy of neighbours such as Thailand.

But today with soaring oil prices, the once-closed communist country that has since eagerly embraced capitalism has seen inflation reach 25%. Its equity markets are near a two-year low and the property sector has taken a beating as speculators lose their shirts.

The plunge in the stock market has been as stunning as its ascent. The benchmark VN index surged 144% in 2006 and another 56% last year. Giddy new investors flocked to securities companies that sprung up in Hanoi and Ho Chi Minh City. People swapped stories about freshly minted millionaires. Since hitting a high of 1,179 points in March 2007, the benchmark index has sunk by more than 60%, reaching 384 last week.

So desperate is the situation that property investors, who just last year expected to become millionaires, are now hoping projects will be postponed so they have more time to come up with the money to make progress payments, Thanh Nien newspaper reported recently.

Their hopes may well be realised, with many Ho Chi Minh City developers struggling to complete projects because of escalating construction costs.

The head of one construction firm, which is building an 18-floor apartment block near the heart of Ho Chi Minh City (HCMC), has asked some investors to pay more than what the sales contract dictated.

He said the company had sold more than 300 apartments at around 12 million dong (24,000 baht) per square metre at the end of last year, after laying the building's foundation.

At the time, at the height of the property boom, the apartments sold quickly. But after the company completed three stories earlier this year, the construction materials "price storm" hit.

Construction costs in Vietnam have risen as much as 40% since the end of 2007, according to a recent report by a the US investment bank Morgan Stanley.

The building company director said building the remaining 15 floors would be much more expensive than the earlier floors. The company tried to persuade its customers to help cover part of the surging construction costs but most of them refused.

Meanwhile, speculators who last year bought apartments in the city are now hoping the projects are delayed.

One speculator, Hong, said she bought two off-plan apartments in the BMC Hung Long project in District 7 last year.

She said she refused to sell the properties at the end of 2007 even though someone offered to buy them at "competitive" prices, which would have delivered her a profit of 800 million dong (1.5 million baht).

But now, although she offered to sell the apartments below the purchase price, she has yet to find a customer.

"I can't get a bank loan [to make the next progress payment to the developer] or sell the apartments," she said. "So I am hoping the project is delayed or even suspended."

The real estate market began to slump when the government began raising interest rates earlier this year to curb skyrocketing inflation.

Last year, many speculators who could afford to buy one apartment outright had decided to make down payments on three.

Developers were only asking for 20% to 30% of the total price.

Burning with property fever, speculators thought each apartment would generate a profit of several hundred million dong.

Failing to anticipate the repeated rises in loan interest rates, the speculators also thought they would be able to take out bank loans if they had problems making progress payments.

The central bank this month raised its benchmark rate to 14% from 12% a year to cool stampeding inflation, which was 25% year-on-year in May.

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