The real estate market can only hold in the short term, unable to recover

DNHN - The government has just issued Decree 08, Resolution 33, which only allow "healthy"real estate companies a temporary exit. These two "lifesavers," the market may have sufficient strength to withstand the current downturn, but it has not yet recovered

According to Prime Minister Pham Minh Chinh, the problem is that "no one rescues anyone; real estate businesses must actively solve their problems."

More than a year ago, information about the crisis of the real estate market in our country dominated the domestic press, especially regarding the crisis of this market, which is still a problem. The economic news is very interesting.

Approximately VND 289,819 billion of real estate bonds matured in 2023.

Beginning in 2021, the real estate market experienced widespread land fever. The proportion of real estate investors to stock market investors has increased exponentially. Real estate businesses accounted for 27.7% of the total issuance volume of corporate bonds (Corporate bonds). The market froze as a result of an increase in real estate prices that were unsuitable for the market, resulting in an inability to sell. This is followed by an increase in bad debt because the project has no revenue, and because the economy has only recently recovered from the Covid-19 pandemic, the purchasing power of all necessities is extremely low. The real estate market was in crisis, particularly following the Van Thinh Phat incident and the subsequent corporate bond crisis.

It is difficult for project developers, investors, and customers to gain access to capital. It is difficult to issue corporate bonds, and the success rate is low. Numerous real estate projects were forced to cease operations. Most real estate and real estate service businesses are required to reduce their production and business scale, resulting in a drastic reduction of personnel.

Recently, the Bloomberg news agency also published an article on the real estate debt crisis in Vietnam, wherein large corporations are delaying payment of corporate bonds.

According to Bloomberg, Novaland Group had to delay the payment of a VND 1 trillion (US$ 42 million) bond debt due on February 12, 2023 and asked the owner to extend or convert the principal into its real estate products. promised to pay the bondholder as quickly as possible.

Bloomberg cited data from the Hanoi Stock Exchange indicating that 54 companies, primarily real estate firms, have ceased operations since January 31.

With billions of dollars in bonds maturing this year, the banking industry and the economy face the possibility of a deeper crisis. According to S&P Global rating analyst Xavier Jean, the current situation is only the beginning. In the coming years, the real estate industry will see an increase in cases of debt extension, restructuring, and even bankruptcy.

"What happens next - and whether cross default spreads occur or not - will continue to be a major market concern," Bloomberg stated.

As a result of the tense situation, many businesses have developed coping strategies. The chairman of Novaland, Bui Thanh Nhon, has just sent a letter to domestic and international financial institutions stating that he is "taking all possible measures to fulfill his bondholder obligations." Mr. Nhon hopes to receive companionship and support.

Before Novaland, other large corporations including Tan Hoang Minh, Van Thinh Phat Holdings, and Sunshine sought to extend Ho Chi Minh City's debt. According to the Vietnam City Association (VBMA), the total value of March-due real estate bonds was VND 17,700 billion, which was more than three times the value of February-due bonds.

Ho Chi Minh City Trading Services Joint Stock Company - Setra Company has just announced that there is no money to pay 20 TP codes to investors; the total amount to be paid is 104,1 billion VND; however, the company did not specify how much money is needed. Time is money. Hung Thinh Quy Nhon has also announced the late payment of interest on bonds issued on May 26, 2021, with a maturity date of May 26, 2024, and a total value of VND 1,600 billion.

According to the VBMA, the real estate industry ranked second in terms of the number of bonds issued in 2022, behind the banking industry, with VND 51,979 billion, or approximately 20.4% of the total amount of bonds issued, a decrease of nearly 76% from 2021. (In 2021, the group of real estate companies issued more than 212,000 billion VND in bonds, or nearly USD 9.1 billion) According to VBMA, approximately VND 289,819 billion in real estate bonds will mature in 2023. This will exert enormous pressure on the real estate industry shortly plunging the market into a severe crisis.

Two "lifebuoys" exist Decree 08 and Resolution 33.

Prime Minister Pham Minh Chinh presided over a nationwide online conference on February 17 to find ways to eliminate and promote the safe, healthy, and sustainable development of the real estate market; assess the current state of the market; and propose solutions.

The Prime Minister is adamant that "no one rescues anyone." The Prime Minister emphasized that real estate enterprises must proactively solve their problems and adjust their selling prices accordingly; they cannot face challenges and also demand profits. The Prime Minister pledged to issue the necessary policies for the effective implementation of the specified objectives, tasks, and solutions.

The Government issued Decree No. 08/2023/ND-CP on March 5 to amend, supplement, and suspend several articles in the Decrees regulating the private offering and trading of corporate bonds in Vietnam. domestic market and offering corporate bonds on the international market by Decree 153/2020/ND-CP, Decree 65/2022/ND-CP, and amendments... Consequently, allowing businesses to extend the time The duration of maturity for corporate bonds is two years. Enterprises may negotiate with bondholders to pay bond principal and interest with other assets by the principles of compliance with civil and relevant laws; must be approved by the bondholder; The issuer must disclose unusual information and assume full responsibility for the legal status of the assets used to pay bond principal and interest by the law. All are based on the consensus principle between the parties.

According to experts, the new regulations of Decree 08 bring many positive values and are the foundation for the promotion of measures to "soft landing" for the city today, particularly real estate bonds issued exclusively to "healthy" real estate businesses.

The Government issued Resolution No. 33/NQ-CP on a variety of solutions to remove and promote the safe and healthy development of the real estate market on March 11. robust and sustainable The resolution goes into effect immediately and contains several solutions to promote the development of social housing, as well as several solutions to remove and promote the housing market. The Government assigned the State Bank primary responsibility for implementing a credit program (credit package) totaling approximately VND 120,000 billion, directing commercial banks, the four largest of which are Agribank, BIDV, Vietcombank, and Vietinbank. Investors and homebuyers of social housing projects, worker housing, renovation and reconstruction projects of old apartment buildings borrow at an interest rate that is 1.5 to 2 percentage points below the average rate. The medium and long-term market balance of state-owned commercial banks.

Credit package of VND 120,000 billion - approximately 12% of the capital needed to promote the completion of at least one million apartments for social housing and worker housing during the period 2021-2030, to support investors and home buyers of social housing projects, housing workers can borrow loans with low-interest rates.

The Government tasked the State Bank with evaluating and directing credit institutions to review and classify real estate projects to take measures to handle loan principal and interest rescheduling and to restructure debt groups by the law, thereby ensuring the operational security of the banking system. The government has tasked the Ministry of Finance with evaluating, reviewing, and recommending the amendment, supplement, and completion of legal documents about the issuance of corporate bonds.

But will the new regulations of Decree 08 and Resolution 33 be "a lifesaver for real estate businesses when the city is pursuing them?"

According to statistics from the Hanoi Stock Exchange, as of the beginning of March, there were 46 companies on the list of late payment of interest and principal debt of corporate bonds with a total outstanding balance of VND 121,100 billion without knowing where to obtain the funds to pay while the real estate market was nearly frozen. According to some experts, the new regulations are difficult to implement and will only prolong the "deaths" of real estate businesses.

Are businesses willing to reduce property prices?

In essence, Decree 08, just issued by the Government, only paves the way for the number of bonds to mature in the short term 2023-2024, without aiding the issuance of new private corporate bonds; has not yet demonstrated a solution to protect bondholders' and investors' interests in the market. Consequently, the city lacks a mechanism for the issuance of bonds to become a sustainable financial channel, even though bonds are a vital source of capital for businesses.

Resolution No. 33/NQ-CP may also be two temporary "lifesavers" for real estate businesses, particularly those with viable real estate projects, to endure in the short term. The remaining real estate businesses must restructure themselves and return to their true worth.

The real estate market is bleak: China's focus is on the stock exchange.

China's newly formed government announced a plan to reform the powerful financial management regulatory apparatus. As a result, China will establish a super-regulatory agency to oversee banking and insurance assets totaling 400 trillion yuan ($57.7 trillion) as part of a sweeping reform plan, which China hopes will strengthen its ability to control risks and resist externally-imposed challenges. A National Financial Regulatory Commission will be established to assume some PBOC responsibilities, while the China Banking and Insurance Regulatory Commission will be abolished. In the meantime, the China Securities Regulatory Commission (CSRC) will be elevated to a State Council agency (the Chinese government). The objective is to resolve enduring conflicts and issues in the financial sector. Bloomberg reported that the fact that the CSRC retains its independence indicates that authorities anticipate the stock market's size and role in the economy to increase in the coming years as a source of wealth for households. The family rather than real estate investments shortly. This is also how China has handled the real estate market crisis in the past and the near future, most notably the bankruptcy of China Evergrande, the second-largest real estate group in China.

At the aforementioned conference, Prime Minister Pham Minh Chinh stated that the structure of real estate supply and demand is out of sync, with excessive emphasis on high-end segments and scant regard for middle- and low-income segments. The price is excessive, and disproportionate to the per capita income. According to press sources cited by the Prime Minister, it takes one year of per capita income to purchase two square meters of luxury housing. According to the Prime Minister, real estate companies lack true adaptability and have not dealt with their problems promptly.

The Prime Minister stated that real estate companies must take responsibility for their misfortunes, including inaccurate forecasts, poor market development, and inefficient capital investment. It is necessary to restructure the segments with reasonable prices to increase liquidity in the direction of a profitable but harmonious enterprise. "When a business is profitable, it can be offset by a business loss, but it is not always possible to make a profit, and it is impossible to make a profit during difficult times," stated the prime minister.

Mr. Nguyen Quoc Hiep, chairman of the Vietnam Construction Contractors Association, stated at the recently held third annual Spring Real Estate Forum that the disease of some real estate enterprises is greed. Some real estate enterprises "have 1 power but want to do 10", have a small capital but issue a lot of corporate bonds, embrace the project but can't sell it, so now there is no way to pay. "This is a serious disease of businesses, easy to say but challenging to execute. Some companies launch 20 to 30 projects annually, including 200 projects- How can 300 hectares have sufficient capital? ", Mr. Hiep said.

Possibly, this is the correct "catch disease" that has contributed to accelerating the real estate market's crisis.

As stated by the Prime Minister, for real estate companies to save themselves, they must take responsibility for their problems and find solutions. In addition to the government removing problems with immediate policies, do real estate companies have the courage to reduce real estate prices to real prices?

According to data from the Vietnam Association of Realtors (VARS), apartment prices in some areas near major cities are excessively high (50 to 60 million VND per square meter) or even higher. In actuality, many apartment buildings that were previously offered for sale at 3–4 billion dong have no buyers; now, real estate companies are attempting to reduce the price to 1–2 billion dong; there will undoubtedly be buyers, as housing demand remains extremely high. While prices are sky-high, this has contributed to the real estate market's demise. Once the liquidity of the real estate market improves, real estate businesses will be able to resolve the crisis.

However, there are still repercussions; banks will be concerned that approximately 75% of the value of collateral for the total loan balance of VND 12 trillion in the banking system will be affected.

Given this circumstance, will the real estate market improve in the coming years? The answer is extremely complicated, even though Decree 08 and Resolution 33 contain several points to reactivate the market, but primarily with "healthy" real estate companies that have good projects.

As a short-term solution, Decree 08 delays corporate bonds for only two years as a "grace" period for businesses to gain bondholders' trust and convince them to accept a delay of 5-7 or even 10 years. This is the issue with self-help businesses.

With Resolution 33, the government directed the Ministry of Finance to develop harmonious, reasonable, and effective measures and solutions to restructure bond debts, interest rates, and other terms and conditions. Conditions of payment (with assets), payment, suited to the actual situation, in the spirit of harmonious advantages, challenges, and shared risks... Moreover, "healthy" real estate businesses continue to receive priority.

Another significant issue is whether or not real estate businesses will regain their strength, i.e., whether they will agree to lower housing prices in line with the market to clear inventories and revitalize the real estate market.

Luu Vinh Hy