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Small, medium developers face bankruptcy as cash crunch tightens   2008-09-28 - ThanhNien

A worker stands by concrete poles at the construction site of a housing project in Ho Chi Minh City.  
Many Vietnamese property developers are caught between a cash crunch that impedes project implementation and looming payback time on short-term loans.



Double-digit inflation and tight monetary policies have pushed many medium and small developers to the brink of bankruptcy, experts warn.

To make matters worse, the deadlines for handing over developed property to customers are also approaching, but the projects have been delayed by a shortage of funds.

The companies are finding it hard to generate funds for their projects as banks have tightened lending, and other capital sources are unavailable.

One official of a real estate company, who wished to be unnamed, said his firm had borrowed VND100 billion (US$6 million) to build apartment blocks in Ho Chi Minh City’s District 12. But after banks decided to stop lending, the construction has slowed down.

“Our company now has to pay interest of VND21 billion ($1.6 million) every year,” the official said, noting many other businesses in the property industry are also facing the same difficult situation.

Le Hoang Chau, chairman of the HCMC Real Estate Association (HoREA), said many real estate developers do not know how to deal with the shortage of funds as short term loans taken with property as collateral are going to fall due at the end of this year.

HoREA General Secretary Do Thi Loan said most real estate companies want to develop their projects using multiple sources of funds – their own capital, bank loans and advance payments from customers.

The market slowdown in the past eight months, however, has made it hard for developers to do this, and as a result, they have missed many good opportunities to procure properties when the prices are low, she said.

Loan suggested local property developers should learn how to mobilize capital from buyers from their peers in Singapore.

Real estate companies in Singapore are allowed to generate funds from customers relatively free of constraints, but they have to keep their projects on schedule and make sure the advance payments are used effectively, she said.

Vietnamese companies have to have the basic infrastructure for their projects built and a host of work certification done before they can solicit advances from customers.

As lenders have cut down on loans, some local property companies such as Sacomreal and Vincom have begun selling bonds to fund their projects.

However, Dang Hoang Vu, general director of the Thanh Binh Real Estate Company, said it was not easy to issue bonds, especially for small-sized companies with limited capital.

Property companies must have the sponsorship of banks and they must be famous enough to attract customers, he explained.

Last month, Chau told Thanh Nien that businesses should unite to overcome difficulties and consider issuing bonds and launching real estate investment trusts (REITs) to generate capital.

Since it is hard for small companies to issue bonds, the introduction of REITs is imperative, he said, adding they have become highly popular in many countries.

“The government should create policies allowing the establishment of REITs as well as promote other kinds of funds to provide capital for the property market,” Tran Minh Hoang, general director of Vinaland Company, said.

“Only then can businesses have financial resources that are strong enough to help them go on with their property projects,” he said.

The real estate market, which was booming until January this year, has since lost steam.

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