Real estate market frozen, investors, banks suffering

Phan, an amateur real estate developer in Go Vap district in HCM City, is now on a knife edge. He has to find buyers for his land plots as he has to get money to pay bank debts, due the end of this month.

The story began in October 2007, when Phan, a high school teacher, decided to withdraw all his capital of VND5bil from the stock market, to inject in real estate. With the sum of VND5bil, plus VND3bil he borrowed from friends and relatives, he purchased a 7,000 ha land plot in district 2.

The investment could have brought fat profit to Phan at that time, when the stock market was lackluster. The fat profit prompted him to borrow VND2bil from banks to make investment in a further deal.

However, Phan cannot make profit on the deal. He now has no other choice than selling the land plots to recover money. However, the problem lies in the fact that no one wants to buy houses while prices are falling.

Dang Hung Vo, former Deputy Minister of Natural Resources and the Environment, said that the real estate bubble is bursting, creating heavy losses for investors.

A question has been raised about how many speculators have injected money in the real estate market in the last time. A recent survey conducted by the Ministry of Finance of buildings that have owners but don’t have people living in them showed that the occupancy rate in some buildings in Hanoi is 38%, and 70% in other buildings.

The situation is more serious in HCM City. According to Le Hoang Chau, Chairman of the HCM City Real Estate Association, 80-85% of transactions in the recent past were made by speculators, not buyers who had real demand for accommodations.

Real estate market freezing, banks suffering

Banks all jumped into the real estate market six months ago by funding real estate investment deals when the market boomed. That explains why credit grew by 53% in 2007, much higher than the credit growth rate of 30% in previous years.

However, it remains unclear what percent of the loans have been poured into the real estate market. The State Bank of Vietnam announced at the end of the first quarter of the year that loans for real estate developers accounted for 10% of total outstanding loans. The proportion was 40% in some commercial banks.

Meanwhile, analysts think that the figure might be higher, if counting the assets mortgaged by individuals and institutions at banks. Some experts say that the figure may be equivalent to Vietnam’s GDP.

(Source: SGTT)