The World Bank forecasts that Vietnamese real estate will recover strongly

According to the World Bank’s (WB) Report “Review – Update on Vietnam’s Economic Situation” published on April 23, the real estate market has experienced a sharp decline since the end of 2022, due to the both supply-side and demand-side factors. Along with that, preventive measures to improve the institutional framework for bonds caused a sudden decrease in issuance, limiting financial resources for commercial real estate investors.

Financial constraints further exacerbate long-standing delays in procedures for certifying land use rights and obtaining construction permits; leading to a sharp decrease in the number of newly licensed residential housing projects and works in 2023 compared to the years 2020 – 2022. The data also shows that in 2022 and 2023, there will be over 2,400 businesses Real estate was dissolved and over 6,200 real estate businesses temporarily ceased operations, 80% higher than during the Covid-19 pandemic.

On the demand side, the State Bank of Vietnam increased interest rates in October 2022 to reduce pressure on exchange rates, and at the same time, the Saigon Commercial Bank (SCB) incident caused buyers to lose confidence, affecting to their investment decisions. Transaction volume in the housing market decreased from the fourth quarter of 2022 to the end of 2023, compared to the period 2021 – 2022.

Due to the interconnected nature of economic sectors, real estate stagnation affects other sectors linked to the real estate industry in the economy. Although the construction sector decreased in growth due to real estate decline, public investment increased by 22% (compared to the same period last year) in 2023, helping to mitigate the impact.

Therefore, growth in the construction sector decreased to 6.8% (compared to the same period last year) compared to the average rate of 8.7% in the period 2017 – 2019. For industries using inputs from real estate industry, the close relationship between real estate and the wholesale and retail industry (real estate sector inputs account for 13.5% of spending after buying a house, such as painting and buying furniture). survey), partly explaining the tepid retail sales growth rate from mid to late 2023.

According to the World Bank, there is a two-way spillover effect between the financial market and the real estate market. Uncertainty in the financial market affects the real estate sector, which is using too much leverage through liquidity constraints, especially in 2022, when interest rates increase.

On the contrary, a quiet real estate market increases financial risks due to great risks from real estate investors, real estate loans and real estate mortgages. To meet the high growth rate in the real estate market from 2021 to mid-2022, demonstrated by the large number of newly licensed projects and the number of transactions and bank credits for the real estate sector. Real estate increases by 18.8% and 24.7% in 2021 and 2022, respectively, much higher than in 2019 and 2020.

The volume of bonds issued by real estate investment enterprises also skyrocketed from VND 60.9 trillion in 2019 to VND 270.1 trillion in 2021. As a result, the real estate sector has a large outstanding debt value. highest bonds (on average, accounting for 30% of total outstanding bond debt) and accounting for an average of 20% of total credit in the years 2020 – 2022.

Real estate transactions have slowed down due to weak demand combined with rising capital mobilization costs due to increased interest rates at the end of 2022, leading to a decline in profits of real estate investment businesses. In addition, after fraud cases at a number of large real estate corporations were discovered, bond issuance was suddenly stopped in 2022, leading to financial stress among real estate investment enterprises. Real estate has high leverage ratio.

As a result, by the end of November 2023, the real estate sector accounted for over 70% of bond default cases. Bad debt in the real estate sector also increases from 1.7% in 2022 to 2.7% in December 2023.

Ms. Dorsati Madani – Senior Economist of the WB said that the real estate market in Vietnam is forecast by the WB to turn around at the end of 2024 and in 2025 when the freezing situation in the bond market shows signs of being resolved. relieve. Along with that is hope for institutional reform when the 2023 Land Law takes effect.

Bao Thoa