Dzung Trieu Law firm_The residential real estate market is undergoing a period of restructuring, making it more professional and more favourable to purchasers.
Two notable movements have been seen in Vietnam’s real estate market during this fourth quarter of 2010. Firstly, CapitaLand, Singapore’s largest real estate investor, began investing in a mid-end apartment project; the first time a foreign investor has poured capital into the segment. Secondly, VinaLand, the real estate fund of VinaCapital, sold its 85 per cent stake in Golden Gain Vietnam Company, which invested in Mandarin Garden, a high-end apartment and commercial project in Hanoi. 
After a period of stagnation in the high-end apartment segment in 2009 and the first three quarters of this year, foreign investors have begun divesting their investment in the segment and turning to the lower-value segment. “Affordable housing has tremendous growth potential due to rapid massive urbanisation in Asia,” said Mr Yip Hoong Mun, Deputy CEO of CapitaLand (Vietnam) Holdings. “We will focus on building well-designed homes that are affordable to owner-occupiers looking to purchase a first home.” 
On October 28, CapitaLand signed a cooperative agreement with Novaland, a domestic developer, to develop a value home project in Ho Chi Minh City. Some 500 apartments of 60 to 70 square metres each will be built at reasonable cost to meet the payment capacity of middle-income urbanites. This is one of the first two projects of CapitaValue Home, the newest affiliate of CapitaLand, established in October. The other project is in China. 
CapitaLand is the first but not the only foreign investor looking at this segment. Many others, particularly Asian investors, are actively researching opportunities, according to a prestigious consultancy company. The change is understandable, given that this segment is the best performing amid a general stagnancy in Vietnam’s real estate market over the last two years. 
Those putting money into projects developing apartments of less than 100 square metres and costing less than VND1 billion ($51,282) each are still earning profits. Sales in the segment are still very strong. The Nam Cuong Group, a major domestic developer, has been very successful in selling hundreds of apartments in its residential projects in Hanoi within just a few hours of auctions opening. Real estate consultants CBRE report a wave of breaking ground at low-cost housing projects in the third quarter. 
Meanwhile, many investors in high-end projects are facing difficulties due to the global financial crisis and slow sales domestically. The divestiture by VinaLand from investments in the Mandarin Garden project is the most recent evidence of the segment becoming less attractive to foreign investors. In September the fund sold 70 per cent of its stake in the five-star Hilton Hanoi Opera Hotel. Its sister fund, VOF, sold its 50.1 per cent in A&B Tower in October, a high-end office building project in Ho Chi Minh City still under construction.
Such movements are seen to be the direct result of the stagnancy in the market segment, featuring slow sales and falling prices. According to CBRE’s Q3 Report, the asking price for luxury and high-end apartments in Hanoi fell by 0.16 per cent and 0.61 per cent in the third quarter against those in the second quarter. “Many high-end projects continue to experience sales difficulties,” the report stated. 
Market restructure
The stagnancy in the high-end segment is part of a general restructuring in the real estate market this year. The market, particularly in Hanoi, is moving from the hands of sellers to purchasers who are owner-occupiers, not speculators, according to an experienced real estate researcher who wished to remain anonymous. 
It is owner-occupiers who have now more power to choose products suitable to their needs and payment capacity. This is because real purchasing power is shrinking in the generally difficult macro-economic situation, while new supplies are increasing and several new regulations are discouraging speculation. 
The macro-economic situation remains grey, with high inflation of more than 8 per cent against GDP growth of around 6.5 per cent, a large trade deficit of around $14 billion, and continued devaluation of the Vietnam dong against the US dollar and gold. The government is also actively limiting credit growth to only 25 per cent this year, in a bid to curb inflation. Against such a backdrop, money inflows to real estate have tightened even further, instead going to the over-supplied stock market, the blooming corporate bond market, and to banks, which all must raise their charter capital to VND3 trillion ($153.8 million) by the end of this year. 
Not only speculators but also developers and investors have faced difficulties in raising capital for their activities. Foreign funds have been one of the main financial resources in the market, mostly in the high-end segment. 
But as they are very sensitive to fluctuations in the global and domestic financial and economic situations and the real estate market, they are the first to withdraw their investments. The case of VinaCapital is just one example. Several others have been fielding questions about the timing of their divestiture from investments in real estate.   
Another feature of the real estate market this year was the strong increase in State management measures. Three new regulations were issued in the second half of the year: Circular 13 and Decrees 69 and 71. 
Circular 13/2010/TT-NHNN from the State Bank of Vietnam increased the risk guarantee ratio to 250 per cent of credit for real estate business, from 100 per cent, and requires banks to set aside 9 per cent of their capital for risk prevention purposes. As a result, credit for the real estate market tightened strongly. 
Decree 69/2010/ND-CP makes real estate enterprises pay land use fees on the basis of their real transfer prices counted at market prices, which can fluctuate greatly. This will present difficulties to enterprises when planning their investments at the beginning of a project. It also increases fee payments, probably by 70 to 80 per cent, against the previous regulation of counting fees on land prices regulated by provincial people’s committees.  
Decree 71/2010/ND-CP, meanwhile, aims to curb speculation by tightening the conditions for project owners to sell future products. One person is permitted to contribute capital to purchasing just one product [one apartment, for instance] in one real estate project in one city or province. They also have to pay money [not just stating they will pay to secure the purchasing rights, before immediately selling the rights to another to earn a profit without paying any real money to developers], and then actually sign purchase contracts. 
Many real estate analysts believe that the new regulations are setting up a new framework for the market in the future. They tighten credit, increase fees and risk prevention and discourage speculation. Consequently, investors and developers must rely more on their own capital, be more creative in seeking funds, be more careful in investment, and make more efforts in delivering products to owner-occupiers. Only strong and professional enterprises can survive, while smaller and unprofessional ones will wither on the vine. 
Owner-occupiers with real needs and real payment capacity will have more choice. “In the time to come the market will be in the hands of purchasers rather than sellers,” said Mr Nguyen Do Viet, Deputy CEO of the Song Da-Thang Long Company. 
Bigger picture 
Stepping back from specific movements within the market, several analysts from consultant and development companies are seeing that Vietnam’s real estate market is becoming more complex, with more diverse products that make it much harder to provide general comments on the market. “Now is a very difficult time, and it’s pointless to even give a general comment on the real estate market in Vietnam,” said the anonymous expert. “The market has so many diverse segments and areas with very different growth and features.” Mr Viet shares this sentiment. 
Many analysts still believe that real estate is a very profitable investment channel, particularly in the context of high inflation and rocketing prices of gold and dollars against the Vietnam dong. “Personally, I think that now is a good time for investors to carefully restructure their investments to focus more on truly profitable projects,” said Mr Viet. “I believe affordable housing will be a good investment now and in the near future.” The main reason for this is that such projects are suitable to the real payment capacity of the majority of owner-occupiers. 
The question is how much money is still available for investment in real estate and when investors will be ready. Many, including private and organisational investors, have money stuck in speculative activities such as stocks, gold and US dollars.

ANH THU (news.vneconomy)