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Capital flow running into real estate sector   2010-06-04 - Thoi bao Kinh te Vietnam

Real estate is swiftly becoming the most attractive investment opportunity for Vietnamese financiers, especially as other areas of development become pricier and less desirable to investors. 

Investors on Nam Viet Real Estate Trading floor

In an analysis report released June 1, Dr. Hoang The Thoa from the State Bank of Vietnam said that other than buying goods as a form of speculation, many investors have decided to try their luck in the real estate sector. Hoang feels these prospectors are purchasing more real estate because it is proving to be a better bet than other markets, with the stock market down, gold exchanges  shut down as instructed by the State Bank Vietnam, and the dong/dollar exchange rate at a more stable rate.

 

“These factors can explain why investors are rushing to make investment in the real estate market, which has made the market heat up day after day,” Dr Thoa said.

 

“The land and house prices in the suburban areas of big cities all have increased by 100 percent in comparison with the same period of the last year. Meanwhile, the land prices in advantageous positions have increased by 35-40 percent over the last month, and they are expected to increase further,” he added.

 

It is clear that such high price increases can bring attractive profit to investors.

 

Some have questioned where the capital for making investment in real estate is coming from. Unlike investments in gold and the stock market, with which small investors with modest investment capital can also join the market, real estate investors require much larger sums of capital.

 

According to Dr. Thoa, there are three sources of capital for the real estate market: stockholder equity, bank loans and capital mobilized from buyers themselves.

 

According to the State Bank of Vietnam, in 2009, the outstanding loans to fund real estate projects accounted for just 11.76 percent of total outstanding loans. Meanwhile, the central bank has many times repeated that banks are not encouraged to lend money to fund real estate purchase deals and securities investments.

 

By May 2010, outstanding real estate loans had reached 192,000 billion dong, an increase of 4.54 percent, equal to just under half of all total credit growth rate, which stood at 8 percent. The real estate outstanding loans in the first five months of the year accounted for just 10 percent of total outstanding loans.

 

Since banks have continued to tighten credit in 2010, real estate companies have needed to mobilize capital from secondary investors through capital contribution contracts. With the contracts, investors borrow capital from clients to develop real estate projects.

 

According to Thoa, capital is also coming from foreign sources. However, he said foreign investment flows only to some segments of the market, including tourism real estate, trade centre, hotel and restaurants.

 

Besides seeking capital from banks or secondary investors, many real estate developers have tried to mobilize capital by issuing bonds. The Nhon Trach Investment Company, for example, has successfully mobilized one trillion dong by issuing bonds, while Kinh Bac Urban Development Company has also successfully raised two trillion dong from the public. Vincom, especially, has become the first Vietnamese business to successfully issue international convertible bonds with the total value of $100 million.


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