Real estate inventory needs to be exact

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The amount of inventories is still very high, it is necessary to pay attention. Photo: ST.

Has the inventory been updated yet?

According to the report by the Ministry of Construction, the amount of real estate inventory as the end of the first quarter of 2019 is about VND20,000 billion, approximately 20% of the initial estimate. This number has dropped sharply compared to 2013 when the real estate inventory peaked at nearly VND130,000 billion.

According to the Ministry of Construction, the current concern about the speed of inventory settlement has slowed considerably compared to the first period. The reason is that many projects cannot be liquidated or transferred to new partners to continue deploying for many different reasons. Previously, at the end of 2018, data from the Ministry of Construction showed that the real estate inventory in the market was about 22,976 billion dong, equivalent to nearly 1 billion USD.

Although there is no change, there are many opinions suggesting that if looking at the number from the Ministry of Construction, it is not possible to evaluate the problem of real estate inventories because not only the rate of inventory reduction is decreasing but the number of new inventories seems not to be considered by the Ministry of Construction. Accordingly, the real estate inventory needs to be addressed.

Commenting on the current real estate inventory data, Mr. Le Hoang Chau, Chairman of Ho Chi Minh City Real Estate Association, said that this data from the Ministry of Construction is not satisfactory. This judgment on the Ministry of Construction may lead to the misperception that the current inventory of real estate is very little while the actual situation of inventories is still very large, special attention should be paid to solving the issue, ensuring liquidity and stable and healthy development of businesses and the real estate market.

Citing the lack of information on real estate inventories, Mr. Le Hoang Chau said that at the end of 2012, following guidance from the Ministry of Construction, the Department of Construction and the HCM City Real Estate Association surveyed 45 projects of the total. The number of 1,207 real estate projects in the city and only the statistics of 36 projects, so the aggregate data of the city and the Ministry of Construction do not fully reflect the number of real estate inventories at the time of the survey in 2012. In addition, representatives of HCM City Real Estate Association emphasized that the initial inventory data was synthesized by the Ministry of Construction at the beginning of 2013, but it has not been updated and supplemented with inventory arising in later years.

Notably, representatives of HCM City Real Estate Association said that the inventory of in 2018 of 65 listed real estate enterprises, the total value of inventories reached 201,921 billion VND. This inventory structure includes inventory in the distribution and circulation process; inventories due to enterprises proactively bringing goods to market and inventories not yet sold. Analysis of financial statements of some big real estate companies in the market showed that the real estate inventory of enterprises is very large. For example, in the top companies, the inventory has reached tens of trillions of dong. For example, by the end of the first quarter of 2019, Vinhomes Joint Stock Company currently has an inventory of 36.9 trillion dong, Novaland Group inventory of 35.7 trillion dong, Industrial Investment and Development Corporation - joint stock company’s (Becamex) inventory was VND 22 trillion. According to the explanation of enterprises in their financial reports, these inventories include real estate projects which are in progress, projects in the process of being implemented and real estate that has been completed but not yet sold and the number of real estate in completed accounts for most of the inventory of enterprises. However, the inventory of real estate completed but not sold is not small. For example, among Novaland Group's VND35.7 trillion worth of VND26,200 billion in unfinished real estate, more than VND9,358 billion was completed but not sold.

Be careful with traps of bad debt

It is supposed that the data of the Ministry of Construction's real estate inventory is incomplete and relatively "mysterious". Mr. Nguyen Van Duc, Deputy Director of the Good Soil Construction Company said that this is due to information gathered, statistics of real estate inventory of the Ministry of Construction are incomplete and inaccurate. Representatives of this enterprise said that there are a number of sources to collect information such as through financial statements of listed companies, reports of real estate enterprises, information of market research enterprises and reports of real estate associations. However, according to Mr. Nguyen Van Duc, even real estate companies cannot know exactly how much their inventory is because inventory is not only unsold but also must include products that have been sold to speculators, investors, and real estate brokers who are still floating in the market and have not yet reached real consumers.

“Therefore, I think the actual inventory in the market is very large, many times larger than the number provided by the Ministry of Construction. Because there are large inventory products from a few tens of billions dong per an apartment or hundreds of billions for a villa. This explains the State Bank's move to tighten the lending for buying high-class real estate with the regulation of raising the risk coefficient with real estate loans worth 3 billion dong or more and tightening credit for enterprises in real estate investment. I believe that because banks have their own research and they feel the difficulties of the market, they have to tighten real estate credit,” said Nguyen Van Duc.

Related to this issue, economic expert Nguyen Tri Hieu said that the Ministry of Construction may be interested in inventory products for a long time without considering new products and unfinished products. It is time for the Ministry of Construction and real estate enterprises to take into account the accounting of real estate inventory numbers, it is necessary to understand whether inventories are pre-existing numbers or even new products that have not been sold yet, or if the product is still unfinished in order to have an accurate and consistent number. Only when there is agreement on how to account and the number of reports, inventories and new products are able to be compared. Expert Nguyen Tri Hieu also said that, in fact, the number of inventories of real estate enterprises could be 10 times higher than that of the Ministry of Construction. If there is the amount of 20 trillion dong in stock, the Ministry of Construction also needs to recalculate the composition.

The expert also warned that the tightening of real estate credit with big value real estate will affect the market, making real estate more difficult to consume, especially transactions of real estate valued at over 3 billion dong. If the risk factor is increased, the interest rate will be increased; the approval of the loan structure will become more difficult.

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"The bank's tightening of real estate credit will affect the real estate market and increase inventory surplus. The State Bank has always warned about the risk of real estate lending, recommending that banks be cautious, but for banks, this is a very good piece of pie with valuated collateral, high interest rates, housing demand is very big. So banks invested money in real estate. This makes it more attractive, which is also the cause of bad debts in the past when there were 70% of bad debts related to real estate. Therefore, banks must be vigilant and have a reasonable credit policy, if they do not keep pushing money into real estate, if a bubble occurs, large inventory will cause great damage as happened 10 years ago. Real estate is attractive, but this is could be a bad debt trap,” warned expert Nguyen Tri Hieu.