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Outlook bleak for City real estate market   2011-01-03 - VNS

Following a troubled 2010, when the HCM City real estate market was in the doldrums, property investors expect 2011 to be equally bad, with funds being hard to raise due to the high interest rates and property lending policies tightened.

"The real-estate market will be very gloomy in the first quarter of 2011," Doan Nguyen Duc, chairman of a large property company, Hoang Anh Gia Lai Group, has been quoted by online VnExpress as saying.

High interest is a big obstacle for both property developers and buyers, he says.

But he has his hopes pinned on a fall in rates by the end of Q2 which can help boost the property market.

Chairman of Viet Nam Houses JSC Tran Van Thanh is also pessimistic: "Trading in the property market will remain gloomy if banks maintain the high interest rates."

High inflation will also force house prices up because costs will rise, he says.

Huynh Phuoc Nghia, manager of Global Integration Business Consultants Co's Marketing Study Division, says 60 – 70 per cent of property projects in HCM City are progressing at a snail's pace because they are dependent on bank loans to a great extent.

He expects many developers to delay construction and others to sell their projects.

"When the [property] market is good, developers can borrow 70 per cent of the capital from banks. But when the market is stagnant as it is now, they dare not borrow [even] 50 per cent."

Le Chi Hieu, general director of Thu Duc Houses JSC, says the major challenges the property market faces include poor infrastructure and transport, mismanagement of urban development and insufficient capital.

Chairman of Sacombank Real Estate JSC (Sacomreal) Dang Hong Anh seems to be the only one optimistic about the property market. He believes it will recover when loan interest rates stabilise in Q3 and Q4.

"Foreign capital and further State investment in infrastructure development will positively impact the HCM City property market in 2011," is his prognostication.

Farmers turn to rubber as prices rise

Deputy PM Nguyen Sinh Hung has urged provincial authorities not to allow farmers to destroy other crops to plant rubber trees.

Rubber prices have shot up in the global market, sending farmers in Viet Nam scurrying to plant rubber trees.

According to figures from the Ministry of Agriculture and Rural Development (MARD), 97,000 ha of land were turned into rubber plantations last year, 39 per cent higher than the target set for 2010, taking the total area under rubber cultivation to 670,000 ha.

Rubber trees were also planted in the north-western region where the soil is not suitable.

A ha of maize or water potato yields VND10 million (US$50) a year, just a seventh to a fifth of what a farmer can earn by growing rubber under current prices.

Dr Nguyen Kim Phong, ex-chairman of the Viet Nam Tea Association, has warned that tea companies could face a shortage of raw materials since many tea farmers in northern Yen Bai Province have turned to rubber.

But rubber trees are productive only in places that are no more than 700 metres above the sea level. The newly planted trees in the north-western provinces may grow well now but no one knows if they will yield latex in the 10 years' time.

But mass planting has caused a dip in the quality, experts warn.

Le Quang Thung, chairman of the Viet Nam Rubber Group, says: "Rubber and coffee growers need necessary technical know-how. Farmers in the north-western region have not been taught about rubber planting. They should not grow this crop."

MARD has collaborated with provinces to prevent unplanned conversion of forests and land under other crops to rubber plantations.

The Ministry has had plans to turn 50,000 ha of fallow land into rubber plantations this year.

Stop lending in dollars, says finance official

To narrow the gap between the official and black-market US dollar exchange rates – which recently surged by VND2,000 per dollar (10 per cent) – Dr Le Xuan Nghia, deputy chair of the National Finance Supervision Council, says it is necessary stop lending in foreign currencies.

Speaking to the Investment newspaper, he said the first thing the Government should do is to intervene in the market and stamp out all expectations of a dollar exchange rate increase on the black market.

Then, it is necessary to adjust interest rates and the compulsory reserve ratio for banks, he says.

If the Government does act, the foreign currency market may be stable in Q1, because the gap between the prime interest rates in Viet Nam and the US is not too big, about 5-6 per cent, he says.

One of the biggest causes of pressure on the exchange rate is the balance of payments. For Viet Nam, it fell from US$8.8 billion in 2009 to $2.5 billion last year, giving hope the exchange rate can be stabilised.

Inflation is now the biggest threat to exchange rate stability, and therefore, it must be controlled, Nghia warns. But core inflation, which excludes food and energy prices, is not high, at just around 7.3 per cent, he says.

The biggest problem now is consumer sentiment, he says, explaining that since people are worried about the depreciation of the dong. He also cites smuggling in of gold as a reason for the roaring black market trade in foreign currency.

Once it manages to narrow the gap between the official and black market exchange rates to 200 dong per dollar, the Government needs to restrict and then stop loans in foreign currencies, he says.

"To do that, we can use the compulsory reserve ratio. The required compulsory reserve ratio for foreign currency loans should be higher than for dong.

"Besides, it is necessary to have a reasonable gap between dong and foreign currency interest rates. This will lead to a situation where businesses will no longer be interested in borrowing in foreign currencies."

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