To rescue or not to rescue the property market is still the question that interests many people. Evidently, the public do not want the Government to save rich real estate investors because they expect home prices to return to their true value. In contrast, investors and real estate speculators always hope to be saved so that they can reach the past heyday.

Money for other goals

Though the market has been frozen for a long time, many real estate investors still believe that the housing crisis, both luxury and average house segments, are only temporary and that the housing price will recover. It is the long-lasting speculation at a large scale which has distorted market information signals, setting an expectation that “property price just goes up, never comes down,” according to the National Assembly’s Economic Committee Economic Report.

The committee also says that the vital action is to save people, not rich real estate investors. Money must be spent on other important economic issues. If the Government wants to assist the housing market, it must be a support in low-cost apartments, helping the poor to afford their own residential tenure. Companies which can not save themselves will be automatically kicked out of the market. No one can help them.

It is not difficult at all to understand why the real estate business is not solved.

The property price in Vietnam’s big cities is among the highest in the world, while the per capita income among the lowest. The housing price in Vietnam is five times higher than that of developed countries and 10 times of developing countries. Real estate supply has failed to meet the demand. Investors just focused on luxury homes, while most people only had an average income to cover basic costs of living.

Moreover, with the current bad debt of the real estate sector (bad property loans and services accounted for 19.25% of the national bad debt tantamount to VND200 trillion), the Government is not capable of solving the crisis.

“In fact, it is an impossible mission to solve the housing crisis because it depends on how well the economic will recover,” said Le Xuan Nghia, vice chairman of the National Financial Supervisory Committee. The Vietnamese economy is still facing with many difficulties. The National Assembly’s Economic Committee says the Government must not accept proposals to rescue the housing market since that intervention could encourage moral hazard, making companies continue to risk their business since they believe that “they can put into the pocket their profits while their losses will be handled by the government,” planting the seeds of deep crisis in the future.

Even if the Government has enough money to rescue property businesses in order to reduce bad debts, will that money be spent on the right place? Or will it flow into the pockets of powerful investors that excel in lobbying?

Better help themselves

Though all the above ideas are only suggestions, they still weigh since they are proposed by a committee of the National Assembly. They could be a warning for real estate investors who have dreamed of being saved. They cannot determinedly keep their products (homes) till housing price increases again. Once the Government decides not to help the rich, real estate companies have to help themselves.

To date, the easiest way is to lower prices. Though house prices have dropped, they are still above their true value. “Current discounted houses still exceeds people’s financial resources and investors still earn too much,” says Minister of Construction Trinh Dinh Dung. Developers need to recalculate costs, and drop prices to stimulate demand. They have to sell houses despite of loss; if their cash flow is blocked, they are at a high risk of bankruptcy.

Another direction for property owners is to go into the rental business because the demand in homes for rent in big cities is very strong. The Government is also encouraging property-for-rent development in order to meet the requirements of a large proportion of low-income people who cannot afford house ownership.

And new real estate projects should also focus on housing for low-income people or on small apartments easily accessible with reasonable price. Deputy Prime Minister Hoang Trung Hai has asked the Ministry of Construction, in partnership with other relevant ministries and departments, to screen and restructure the market to turn into low-cost houses. He has also requested the ministry to take measures to reduce the inventory and guide localities to transform commercial housing projects into budget housing projects.

Some companies have quick-wittedly begun to switch to that direction by building homes for low-income people. Since the beginning of 2013, seven low-cost housing projects were launched with the expected number of more than 11,000 apartments. One example is the  North An Khanh (Ha Tay, Hanoi) project with 5,196 apartments by Vinaconex Corporation, or the Dang Xa II (Gia Lam District, Hanoi)  project with more than 1,000 apartments by Viglacera Corporation.

It might be a wise solution which helps them to survive. The National Assembly Economic Committee says that the Government should give a clear message: only rescuing budget housing projects, and saying no to average and luxury housing projects.

Real estate developers, who used to fill their pockets for years, have to accept the reality that they will be “worse off”. In fact, they are no longer “richer than Croeous” but still very rich.

Source: SaigonTimes.