Dr. Su Ngoc Khuong believes that real estate is one field that attracts huge investment capital, with each project ranging from hundreds to thousands of billion dong. The current crisis incurred due to the Covid-19 pandemic will no doubt have a strong impact on both spending capital and the real estate consumer market, especially in the segments of resort real estate, commercial centers such as shopping malls, retail spaces, as well as office spaces for lease. When developing real estate projects such as resorts, hotels, offices for rent or shopping centers, the investment capital mainly comes from banks. With the impact of the Covid-19 pandemic, many investors are now almost financially exhausted and some even unable to pay the principal or the interest.
The housing projects too are in a dilemma. Usually, equity for these projects accounts for only 10-20%, while the rest of the capital is borrowed from banks and collected in advance from buyers. However, the ability to access bank loans for projects in the current scenario has become extremely difficult, while raising capital from customers amid rising unemployment, falling wages and income, is also proving difficult. The real estate market for resorts, hotels, offices and shopping centers has become directly affected. In residential real estate the capital rotation is quite fast, about 3-5 years, while in commercial real estate it takes 10-15 years.
For those investors who have strong financial potential, overcoming difficulties over a period of one or two years is normal. For businesses that use too much financial leverage, this will be difficult and they will be forced to find investors to transfer or sell assets to, so as to secure the project. Currently, housing projects have a clear legal framework, are ready for construction investment, and investors are easy to come by. Therefore, legal procedures for projects should be completed as soon as the market recovers, so that new investors can develop the projects or call for more domestic and foreign investments.
JOURNALIST: - Sir, the real estate market is facing difficult times right now, but which businesses still have an upper hand?
Dr. SU NGOC KHUONG: - Overall, the Covid-19 pandemic is having a negative impact on the real estate market as well as a domino impact on more than 50 related industries such as construction, materials, labor, and finance. This clearly is a difficult time for many investors, because implementation of projects requires huge capital. On the other hand, those businesses with good financial backing and a lot of experience in real estate investment, have a good opportunity at this time. These businesses use financial leverage moderately, can overcome difficulties and seize opportunities in times of difficulties.
In the last few years, the market witnessed a lot of strong potential investors who were willing to buy and transfer projects from investors facing difficulties in real estate. It is expected that there will be some transactions taking place in the third and fourth quarter if all goes smoothly. The most active group of foreign investors are from Japan, South Korea, Hong Kong, Singapore and some European countries.
- Sir, could you please explain why foreign investors are actively looking for real estate investment opportunities in Vietnam at this time?
- In my opinion, there are three reasons. First, the real estate market in the aforementioned countries have been very well developed already and with the market saturated it is very difficult for investors to find business opportunities there.
In the real estate market, the outbreak of the Covid-19 pandemic will cause several difficulties for a shorter period, that will begin to resolve when it is brought under control. However, legal bottlenecks throttling the real estate projects must be removed immediately, as these will cause difficulties in the long term.
Second, Vietnam is considered an emerging market, and has many advantages in attracting real estate investment. The size of our country's population is approximately 100 million people within the age group of 25 to 40, so the demand for housing and purchasing power is huge. This is supported by a stable GDP growth rate of 6.5% to 6.8% for the last few years, with per capita income increasing significantly in the last ten years, especially in major cities. Investors therefore feel quite comfortable when looking at Vietnam because of political stability, strong trend towards urbanization, and a developing transport infrastructure.
Third, in Vietnam the real estate market, the efficiency of exploitation and cash flow for properties that have been put into operation such as hotels, shopping centers, offices for rent, serviced apartments, are very stable. These assets are foreign brands but most of the owners are domestic investors. Foreign investors often participate in management and operational services. Therefore, this is a time for foreign investors with strong financial resources to seek investment opportunities in Vietnam. Foreign investors were quite active in the years 2008 to 2011, when the real estate market was in a crisis here. Now too, when project owners are low in funds and have difficulty accessing bank loans or mobilizing capital from buyers, foreign investors can step in with strong financial advantage and management experience to complete projects successfully.
- Thank you very much.