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Skirting banks using bonds   2010-04-01 - VietNamNet/DTCK

High interest rates of 17-18 percent per annum keep many real estate developers from accessing bank loans. Still, adversity brings wisdom: they now want to mobilize capital from the public by issuing bonds.


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Sacomreal is the first company in HCM City to try this method. At first, Sacomreal issued bonds to raise funds for Phu Loi 1 project. After that, capital for the Belleza project was gathered through issuance of bonds totaling 750 billion dong.


Each bond was valued at 1.5 billion dong and offered holders options on a Belleza apartment and an eight percent discount on the purchase price.


Just after three days, Sacombank mobilized the capital it needed.


Dang Hong Anh, Chair of Sacomreal, remarked that it is very difficult now to mobilize capital for real estate projects. He stated that real estate developers who offer competitive interest rates on bonds and attractive conditions will be able to attract clients and arrange enough capital.  


To implement the first phase of a 942 hectare East Saigon urban area project in Dong Nai province, Tin Nghia also found 1000 billion dong by issuing bonds.


Nguyen Thi Thanh Huong, Director of Tin Nghia Real Estate, commented that real estate developers cannot rely on bank loans to develop big projects. Huong said that diversifying capital sources is key to mobilizing sufficient capital.


Financial experts have urged the Government to set up a legal framework on enterprises issuing bonds.


“If government agencies are slow to do so, a market of project bonds may take shape and become uncontrollable,” noted a business analyst. “Meanwhile, if we have a perfect legal framework, real estate developers with have a new and effective method of capital mobilization.”


Dang Hoang Vu, General Director of Thanh Binh Real Estate Company, stressed the need to simplify legal procedures. Vu explained that investors take 3-5 years to follow all necessary procedures, and that the complicated system makes the total cost of projects double.


HCM City Real Estate Association Chair Le Hoang Chau revealed that real estate firms avoid bank loans because of the overly high interest rates. They only borrow money to complete projects that are close to completion.


He asserted that “The interest rates need to decrease so that real estate firms can access bank loans. Only when the rate drops to 0.85-1.1 percent per month, will the market develop in a sustainable way.”


Chau added, “If real estate developers invest in a project capitalized at 200 billion dong and they have to borrow money at the rate of 17-18 percent, the total interest they must pay over five years would be some 200 billion dong, which is unaffordable.”


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