The real estate association has said the property market is at risk of a downturn that could be a drag on the economy, which is already projected to fall from 7.4% this year to 6.2% in 2023.
With about $4.6 billion of property developer notes tracked by Vietnam’s bond association coming due next year, the firms will struggle to meet obligations without government support, according to local real estate executives and analysts. Funding has all but dried up after an anti-graft campaign spooked investors and authorities froze new bond issuance across the industry.
According to Tran Xuan Ngoc, CEO of real estate developer Nam Long Group, "the real estate sector is experiencing a serious crisis." We don't know when the crisis will end because it depends on the government’s actions.”
Vietnam's property stocks have tanked amid an industry probe
There are already growing signs of tension. Home sales are expected to decline by 5% next year, according to a recent Fitch Ratings projection. This, together with growing prices, will cause property firms to take on more debt. Businesses have been compelled by a lack of cash to sell properties at severe discounts of up to 40% and turn to shadow loans with high-interest rates. The sale of 1,000 newly constructed residences in Vietnam used to take approximately two months; now it takes six to eight months, according to Nam Long's Ngoc.
As bonds mature, the industry's issues are expected to get worse; according to SSI Securities Corp, next year will see the highest number of property industry maturities ever. There isn't much publicly available data on maturities and the majority of developer debt is held in local currency. Most is held by local banks and retail investors.
Analysts are looking to an easing of the country’s bond rules as a potential pressure release mechanism. Vietnam’s leaders remain focused on the nation’s economic growth targets as it seeks to become a major manufacturing hub, having already attracted the likes of Apple Inc. suppliers and Samsung Electronics Co. That means Hanoi is willing to move quickly and proactively to address risks. Finance Minister Ho Duc Phoc said last month the government is taking measures to ease access to capital for developers given the rout.
The supply-side issues have been resolved by the proposed steps, giving issuers more breathing room. To boost fresh financial flow into the market, more demand-side remedies are necessary, according to Luc.
Cashflow is a big concern as refinancing risks loom large. The refinancing will become a “stress test for developers’ repayment capability,” Hien predicts.
Vietnam firms have the highest ratio of short-term liabilities in Southeast Asia
The real estate association has said the property market is at risk of a downturn that could be a drag on the economy, which is already projected to fall from 7.4% this year to 6.2% in 2023.
“The property market will face headwinds in the short term not just from policy moves, but also from the rising rate environment,” said Nguyen Duc Hai, head of fixed income at Manulife Investment Fund Management (Vietnam) Co.
Source: Bloomberg
Read more: Monthly Economic Report - December 2022