Reviving the Vietnamese Real Estate Market
Updated: 27/6/2013 | 9:28:23 AM
Resolution 02/NQ-CP and other urgent immediate and long-term recommendations aim to stop the worsening situation of the real estate business in 2013, as well as over the next 3 - 5 years.
On the occasion of the new year 2013, the Vietnam Business Forum had a talk with Mr Phan Thanh Mai, General Secretary of the Vietnam Real Estate Association, around this issue. Anh Son reports.
How would you describe the situation of the real estate market in Vietnam in 2012?
To talk about the state of the real estate market in Vietnam in 2012, we can fully use the word: severe.
Why do I say that? Firstly, the current confidence of consumers – the market participants – seriously declines and real estate businesses are, at the same time, facing many difficulties such as large inventories (finished products, under-building construction, unfinished projects not sold), while enterprises do not have the resources to recover, and thus face the risk of losing liquidity and entering bankruptcy when revenue declines past the point of offsetting the costs and expenses to maintain operations.
Secondly, input costs are too high, making it difficult for real estate enterprises to implement projects for people with average and below average income, as well as commercial projects and social housing. Specifically, in terms of cost of land, according to the regulations on land use payment and deductible compensation and land lease in the Land Law, Decree 69/2009 and Decree 120/2010, enterprises have to pay back 100 percent of the land use fee to the State, meanwhile the time of investment projects are not clear so they don’t know the exact amount of land use fee to be submitted to the State. In terms of loans, interest rates for real estate remain high, at around 17 percent / year, so the interest burden for businesses is huge. They also face construction costs and other no name costs, such as project implementation period being extended due to cumbersome administrative procedures, and overlapping at all stages, especially in land clearance and necessary approvals. Many businesses have adopted the strategy to convert commercial housing projects to social housing, or change the design by splitting flat area, but they also face many difficulties due to the provisions of Construction standards 323: 2004.
Thirdly, bad debts and overdue debts are a burden which obstruct access to new credit, leaving real estate businesses without new capital to restructure and continue operations. Along with that is the state of interest rates, about 12 – 15 percent, which is still nearly double the rate of return on equity (ROE) of real estate businesses (about 8 percent), which means that real estate business cannot run effectively, leading right back to new bad debt.
As a representative of about 1,500 real estate businesses, what are the Association’s recommendations about solutions to ease difficulties for the property market in the next few years?
Solving the problems of the real estate market is a multifaceted issue. So, based the recommendations of experts and the business association, we propose the following solutions, which need to have the cooperation of several ministries.
First, we should quickly implement the package passed by the Government to overcome difficulties and support the market, which has been issued in 02/NQ-CP Resolution on January 7th 2013. The above guidelines have a strong positive impact on the confidence of all participants in the real estate market, and the stock market. However, in order to implement the package effectively, the relevant agencies should clarify the detailed progress and deployment solutions such as: review the progress of implementation of projects in the provinces and for conversion purposes, extension of deployment or withdrawal of the project, control the supply and demand at the local level; focus on the development of social housing; support and promote demand adopted to realize the expansion of foreigners who are allowed to buy houses in Vietnam.
In addition, it is necessary to establish a Vietnam Asset Management Company - VAMC in the shortest time possible to buy bad debt at book value or market value, conduct bad debt settlement, and address overdue debt, so businesses can have opportunities to access new capital. We should submit to the National Assembly soon preferential policies for enterprises to implement social housing such as: corporate income tax of 10 percent, VAT output to drop about 5 percent in 12 months from January 7th 2013. For commercial housing projects with cost of less than 15 million / m2 and area below 70m2 / apartment, the preferential VAT policy output fell to 30 percent in 12 months from January 7th 2013.
Secondly, we need to stimulate public investment, especially investment in infrastructure. This is the foundation to improve confidence of all actors on the market. It’s necessary to settle infrastructure works in progress, and actively promote the project to solve the problem of urban traffic; and continue reforms towards "one-stop-shop" at Provincial Committee departments, in order to shorten half-time evaluation and planning approval, especially settlement procedures adjusting detailed planning of 1/500 and the design of the project in stock, unfinished construction, conversion from commercial houses to social housing.
Thirdly, we should suspend the decrees, resolutions and circulars in 2013, without the comments of the enterprises, if their content does not support the market. It’s urgent to focus on amendments supporting market policy. In the draft policy, businesses can now give feedback and after the enactment, it’s necessary to give guidance for businesses. The policy should include not only sanctions, but also preferential terms. Especially after a period of policy implementation, we should review and measure the level of "companion" policy.
For specific ministries, the introduction of measures to shore up the market is very important. What does the Association propose regarding the ministries and agencies?
To the central bank, the Association proposed further reduction of interest rates to 8-10 percent / year, because the rate of return on equity (ROE) of real estate business is very low. At the same time, it’s necessary to have preferential policies on interest rates or reduce their tax for commercial banks, which spend annually 3 percent of total loans for social housing development. It should also form a re-mortgage model (Malaysia model), providing new funds for home buyers, especially in the form of policy objects and social housing.
It should also give the package of VND20,000 - 40,000 billion for social housing and commercial housing under VND 15 million/m2 for houses of less than 70m2 with an interest rate under 8 percent / year, so customers have the ability to pay.
To the Ministry of Finance, we proposed applying double non-taxation through cutting corporate income tax equal to 0 in order to promote real estate investment fund models (similar to real estate investment trusts REITs) under Decree 58/2012/ND-CP; delay and reduce VAT for businesses in general which have large inventory associated with the real estate industry and construction materials, provided that the product inventory is of domestic origin; and exclude the land use fee for projects completed land use fees in accordance with the law for merger of Hanoi.
For the Ministry of Natural Resources and Environment, the early research suggested the Land Law (Revised), which clearly stipulates how the market price of land is determined. Amending Decree 69/2009 / ND-CP content "land use fees at market price monitoring mechanism" to avoid tax 2 times; allow transfer of the payment of land use from the investor to the purchaser responsible (apply as in the case of Phu My Hung, Ciputra); Buyer may owe land use (such as applied when GCN authority to use the land for the first time for families and individuals workers) in the period from 3 to 10 years, homebuyer assistance through the mechanism of payment of land use.
To the Ministry of Construction, we proposed considering a change to the standard of high-rise building on the prescribed flat rate small, medium and large in proportion 1:2:1 as inconsistent with the facts; instead, it should allow businesses to balance and select the rate in accordance with market demand, by region and by project; and reduce the area target from at least 8m2/person in Part 2, Section 2.42 "regulations on planning land use” of QCXDVN01: 2008/BXD into 5m2/ person in the planning criteria for the construction of public housing group.
(Source: VCCI News)