The main reason for this is that cash flow has stopped almost completely due to difficulties with corporate bonds leading to a huge loss in investor confidence.
Recently, the Government and various agencies made an offer of support to revive the real estate market, which is to issue relevant documents and circulars to remove obstacles for many projects that are on hold for a very long period of time. However, the important thing at this time is that real estate businesses must work towards gradual recovery of the real estate market by accepting lower sales and cutting down on many of their losses. Saigon Investment had a talk with Mr. TRẦN KHÁNH QUANG, a financial and real estate expert, to understand many of the factors that are troubling this vital market.
JOURNALIST: - Sir, how has the real estate market changed after Decree 33 and Decree 08 were issued by the Government?
Mr. TRẦN KHÁNH QUANG: - Decrees 08 and Decree 33 have created more vitality and a new wind is blowing for the real estate market. Decree 08 has opened the bonds market and has agreed to extend the maturity period for another two years. Businesses also have the right to change bonds into real estate products. This is an instant solution to support cash flow and financial support for real estate businesses.
Decree 33 also sends a strong message. First, local governments must quickly remove the laws that are holding back projects so as to clear unqualified inventories. Second, there is a need to build a package of VND 120,000 bln for social housing development to balance supply and demand in the market because the difference in demand between high-end products and low-priced housing is very large. Third, we need to propose to banks to extend debts for real estate enterprises that are facing difficulties. Therefore, it is only a matter of time before these solutions start to affect the market.
- Sir, in your opinion should real estate businesses immediately think about reducing prices to create liquidity as well as save themselves? Same as when businesses fell by 30 percent to 40 percent during the recession crisis in 2008.
- In 2008, enterprises were in an extremely difficult situation, and in order to save themselves, many businesses had to transform themselves and offer a strong discount policy, even down to 50 percent to stimulate market demand and create cash flow to continue operating. I think the present time will be a repeat of that period again. Because the Government support solutions are only external, internal resources must come from the efforts of real estate enterprises, which means financial restructuring, especially selling price restructuring to create the best cash flow.
This does not require profit to continue operating. In fact, since the end of 2022, some businesses have reduced prices by 30 percent to even 50 percent on consumer products. This is continuing to happen in some real estate enterprises that are offering a 10 percent to 20 percent discount. According to my observation, currently, 80 percent to 90 percent of real estate businesses are implementing discount policies in several different forms, through direct discount policies, promotions, discounts, and gifts.
- Sir, as you said, when real estate prices drop by 20 percent or even 30 percent it stimulates demand as well as frees up the cash flow. So, if the rate is reduced by 20 percent or even 30 percent, will real estate businesses see more profit or more loss?
- This is a difficult question. In fact, if you reduce by 20 percent or even 30 percent, there will be two problems created. First, this will reduce financial problems and ensure cash flow continuity for operating. Two, it will reduce profit not losses. In my opinion, for land fund projects formed three years ago, the possibility of reducing by 20 percent or even 30 percent is still profitable for land fund projects started one or two years ago. At that time, the cost was very high, and the reduction of about 15 percent or 20 percent for enterprises broke even. Thus, enterprises must make their own choice to ensure survival in the market.
- Sir, in your opinion, which real estate segment is still liquid?
- Actually, at present, the demand in the real estate market is still very large, but the supply is mostly for medium and high-end products. Social housing and affordable housing are very few. This is the segment that always has good liquidity. For instance, a number of new social housing projects have just been introduced that have received the attention of big investors. It is understandable, because the current apartment market has to sell about VND 40 mln per square meter or more, and the price of old apartments is also nearly VND 30 mln per square meter, so it is only investors who buy and sell, but the real demand still has to wait.
It is not an exaggeration to say that the Ho Chi Minh City area has apartments priced below VND 40 mln per square meter which are increasingly rare. I am also a project investor, and my calculation shows that an apartment in Ho Chi Minh City costs from VND 30 mln to VND 35 mln per square meter, plus the lowest profit margin of the enterprise must also be 15 percent, so selling new apartments to the market will definitely be over VND 40 mln per square meter. Therefore, in order to have a low selling price, the investor must invest in the localities near Ho Chi Minh City such as Binh Duong, Dong Nai, and Long An.
- Sir, what is the difference between the real estate crisis in 2008 and the current crisis?
- The 2008 period I also experienced and at that time I worked in a relatively large enterprise. When the crisis was in its seventh month, the cash fund in the company was only enough to pay employees for the next three months. Just like the current situation, businesses had to cut down on staff by 30 percent to even 50 percent, while some branches laid off around 70 percent of staff to reduce wages. At that time, leaders only received 30 percent of their salary to support the company from collapsing. These moves paid off and businesses overcame a difficult period when a year later the market began to slowly recover again. At that time, the real estate market also reduced prices by 20 percent to even 50 percent at times. That was also the time when some investors jumped in to buy cheap as they saw a great opportunity.
- Thank you very much.
