What do real estate businesses need to withstand and overcome the pandemic?

Le Hoang Chau, Chairman of Ho Chi Minh City Real Estate Association

In the context of the current stressful pandemic, how do you think the real estate market is facing difficulties?

The real estate sector contributes about 7-8% of the country's GDP and is related to more than 35 different industries, creating jobs for millions of workers.

After nearly two years of fighting the Covid-19 pandemic, most real estate businesses have gradually exhausted themselves, resources are eroded and the risk of bankruptcy is always high. More than 70% of firms have been affected by production and business activities. Many businesses had to suspend operations or temporarily close, most other businesses have reduced their revenue by 50% to 90% compared to before the pandemic.

Many stocks of real estate enterprises fell to the floor, lay on the floor, all real estate businesses were significantly affected, crowded events such as promotion, and marketing and sale of real estate products were canceled. In particular, the resort real estate market and the rental real estate market were severely affected, especially the situation of rental premises in the podiums of high-rise buildings and many townhouses. Rent is returned by many tenants.

The fourth wave of the Covid-19 pandemic is breaking out strongly in the southern region, the implementation of large-scale social distancing makes real estate businesses struggle to surround. But at present, the lack of cash flow is the biggest and most worrying direct problem.

Can you analyse more clearly how the difficulty of the lack of cash flow has affected the real estate sector?

The lack of cash flow to the real estate market is similar to a lack of oxygen in the body. A lack of “oxygen cash flow” can make businesses “suffocate” immediately, because there is no money left to pay interest and debt, no money to maintain the apparatus and support and retain employees, there is no money left to endure through this difficult period because projects cannot be implemented on schedule, have to stop construction, lack of products while the market is "stagnated", transactions are dropped sharply, could not sell products, sales were "falling vertically" and unable to raise capital as before.

The difficulty of lack of cash flow is related to the difficulty of credit because at the moment, bank loan interest rates have not decreased as expected and firms still have to pay bank interest regularly every month. With each day, businesses have to rush to borrow money, even having to "take hot loans" to pay salaries, to maintain minimum operations and to pay bank interest, especially credit loans. Because, according to banks’ operating regulations, if the loan is not paid back due, the bank will automatically switch to "bad debt", or "worse debt", which has been classified as "bad debt", “worse debt group” firms will find themselves in a deadlock as they cannot access new loans to overcome difficulties.

Money jams, capital jams, and loss of liquidity are the biggest risks and are risks faced by all businesses, although they may still have assets, but because they have not been sold, leading to a lack of cash flow, so businesses can be "dead on the pile of assets" of their own.

What kind of support do real estate businesses need to increase resilience and overcome difficulties?

To increase resilience and overcome difficulties, real estate firms do not ask for financial support from the State but only ask for assistance in solving problems and inadequacies in terms of mechanisms, policies and administrative procedures. Timely removal of difficulties and support for real estate businesses within the framework of policies and laws will help the market recover soon and regain its growth rate, contributing to a larger and more stable budget.

Over the past two years, the State Bank has directed commercial banks to implement effective support solutions for businesses. Banks have restructured loan repayment terms, kept debt groups unchanged, and exempted and reduced lending interest rates for nearly 800,000 customers, including businesses and households with outstanding loans of nearly VND2 million billion VND. Of which, direct and indirect loan interest for old or new loans for businesses has been reduced by about VND18,830 billion.

However, most real estate firms have not been considered by banks for adequate support because they are still considered a potentially risky business. The Real Estate Association has recently proposed to the Government and the State Bank to allow credit institutions to consider and decide on the rescheduling of debt repayment terms, exemption and reduction of interest and fees, keeping the same debt group of customers, including real estate businesses, households, and individuals, and is applied to the debt balance arising from January 23, 2020 to June 30, 2022.

The consideration of new loans to customers will provide more practical support to businesses, including real estate enterprises affected by the Covid-19 pandemic, helping to reduce loan costs and input costs, to have access to new loans and to have more time to gradually restore production and business under new normal conditions. The State Bank of Vietnam recommends commercial banks to consider reducing loan interest rates by about 2% per year for customers, which is reasonable and reasonable, ensuring the harmony of interests of the parties.

With the current situation of sudden depression, what will happen to the real estate market in the rest of 2021?

Although the real estate market is in a state of "freezing" and businesses face many difficulties, however, the current depression is only temporary and due to the impact of circumstances, as the most important thing is the market is always in demand for housing. Therefore, after the pandemic was controlled, the market still developed well, there was no "bubble" like in 2007-2010 because tax, fiscal, and planning policies were all well controlled.

I think the important thing now is that the legal regulations on land, the process of project approval as well as investor recognition need to be perfected, ensure fairness, and create favorable conditions for investors. Firms have the opportunity to develop healthily. In particular, in the near future, the regulations that cause inadequacies and obstacles in the Law on Housing 2014 that hinder investment activities of firms will be revised, contributing to creating a new development motivation for the market.