Real estate companies in dire straits under pandemic

(07/07/2021) - Real estate companies in Vietnam are currently facing grave difficulties, with most localities implementing strict social distancing measures due to the outbreak of the fourth wave of the Covid-19 pandemic.

Marketing and business activities are at a standstill, while promotional events to introduce new projects are on hold. Potential buyers or investors are not being permitted to visit project sites, leading to huge losses.

Selling to cut losses

Vietnam has faced four waves of the Covid-19 pandemic ever since it broke out in early 2020. During all this time, markets have faced continued turmoil. This continual dire situation is compelling investors to find ways to sustain themselves. Mr. Tran Khanh Quang, a real estate expert, said that investors have prepared financial resources for products in this fourth wave of the pandemic which has raged on for last two months. However, if this situation were to continue for another two to three months, some investors would be left with no choice but to sell at discount rates to cut losses, especially products valued above VND 10 bn.

According to Mr. Quang, in the real estate investment market, there are always two customer segments. First is the group of customers who buy products with their own financial resources, and not by borrowing. Second is the group of customers who invest with financial leverage, especially through loans from banks. Hence, if the pandemic situation lasts for a long time, they will be forced to sell at a discount to cut losses. In coming time, Mr. Quang hoped that some customers would pour money from securities and stocks into real estate.

According to many experts, if there is a stable financial source, investors and customers will consider buying real estate at competitive prices. As many investors have problems with investment capital flow, and income is affected by the pandemic, and they cannot pay banks, therefore many have to sell off some assets to survive. During these difficult times, many investors are willing to sell almost VND50 mn or even VND100 mn lower than market price, to resolve their financial problems. In addition, buyers with stable finances from many sources can consider buying more, using bank loans about 20% to 30% of the property value. However, the pandemic is showing no signs of relenting, so buying will be cautious, and only transactions that are legally cleared and competitively priced will take place.

As noted by reporters at the Real Estate Exchange in Ho Chi Minh City, trading or learning about projects is very limited. Both sellers and buyers are wary of the Covid-19 pandemic situation with face-to-face contact activities being limited. Mr. Doan Chi Thanh, Chairman of Hoang Anh Holding, said that the company is currently preparing to deploy an apartment project in Binh Duong Province. The legalities of the project are complete, but the implementation of the sales have been on hold due to the pandemic. Mr. Thanh shared that they had organized sales training to introduce and bring customers to see the project, but all activities in the current situation have been shelved due to strict restrictions under the ongoing wave of the pandemic.

Market still fragile

According to Ms. Nguyen Thu Huong, General Director of Van Phuc Land, the first six months of the year have passed quite contrary to the optimistic predictions at the beginning of the year. Two consecutive and prolonged pandemic waves have upset all plans and programs of real estate companies. The market has almost come to a standstill in this current fourth pandemic wave. This has dealt a direct blow to the real estate market. Any company that had been quick to move between the two pandemic waves can take advantage of some profit, but still cannot give up trying or sit and wait for opportunities for when the pandemic will end.

Looking back at the first six months of the year, we can summarize and easily visualize the market movements as optimistic, cautious, and waiting. This means that we have to continue to wait for any opportunities in the last six months of the year. What opportunities will arise in the next six months of the year depends entirely on the pandemic situation, and not on the market.

The reality of the Covid-19 pandemic is that it is here for a longer time than we expected, and difficult to predict when it will end. Vietnam, as well as the world, will be forced to coexistence with it. We may have to sacrifice the third quarter to track pandemic cases in the community and deploy more vaccination programs for the people. However, there are two possible scenarios we can expect in the coming six months of the year.

One positive scenario is that the market may partially recover in the middle of the third quarter and prosper again in the fourth quarter, assuming that at least 50% of the population has been vaccinated. It will also be vital for at least 100% of employees of real estate companies to be vaccinated. The market in the last six months of the year is likely to grow at least 25% to 30% compared to the first six months. This growth rate is expected to be achieved only if the real estate business accelerates as much as possible to compensate for the first six month losses.

The worst case scenario could present itself if this situation continues for another quarter and the vaccine supply is not enough for all the population but only reaches less than 30% of the people. In such a case, real estate companies may have only 50% of their employees vaccinated. The market is unlikely to grow in the coming six months, because now businesses are gradually exhausting their abilities. Keeping the apparatus running has already been a huge burden for companies and most production and business plans are now disrupted with revenue dropping drastically. The overall market has hardly grown above 20% compared to the first six months of the year, and even timely support has not yet arrived.

However, in both case scenarios, there are many external factors also affecting the market. There is the question about the State policy, business support packages, consumer demand stimulus packages, disbursement of public investment packages, and the process of removal.

Do Tra Giang