Real estate stock valuation is not really attractive

The real estate market is waiting for the amendment of three important laws: the Land Law, the Housing Law, and the Real Estate Business Law, which are expected to take effect from early 2025. Accordingly, experts expect that the implementation of the amended laws will remove legal difficulties, capital sources for projects, balance supply and demand, and promote the housing segment associated with real market demand. The unblocking of credit and bond capital sources is being accelerated. Credit capital for real estate loans has been and will be promoted in the coming time thanks to the decrease in interest rates for both old and new loans in the period of 2019; banks have implemented preferential credit packages.

However, experts believe that the strong differentiation of the real estate market will begin to manifest itself from 2024 between regions, segments and businesses. Accordingly, experts from VCBS Securities Company believe that some real estate businesses facing serious liquidity difficulties may have to accept leaving the market, or gradually transfer project portfolios and business segments to handle debt obligations.

Large-scale enterprises with projects that are legally stuck, capital sources are still actively supported to avoid the risk of bad debt and projects being suspended for many years. However, some enterprises predict that it will be difficult to restore their position and scale of project development as before.

VCBS believes that some businesses can take advantage of the market's purification and differentiation phase to break through in the new cycle. These are businesses with a healthy financial structure, using debt at a reasonable level, business efficiency creating high cash flow and not being bogged down in projects that are too large; owning clean land funds with few legal problems, having the ability to bid and implement projects systematically, creating good added value for products; products, business locations suitable for market tastes and having the ability to attract real residents.

Regarding real estate stock valuation, Agriseco Research Securities Company commented that the average valuation level of the Real Estate group is trading at a P/B of 1.3x compared to the average of 8.1x over the past 10 years. The decrease in valuation level mainly comes from the sharp decline in the fourth quarter of 2020 and the stock price has not recovered to the previous price range.

However, this does not imply that the real estate stock price level is at an attractive level when most of them have increased in price since the beginning of the year while business results have declined and the industry context is still very difficult. On the positive side, there are still some stocks of enterprises with good land funds and project implementation capacity that are at suitable valuation levels, which is an opportunity for investors to consider choosing to disburse and hold in the medium and long term.

According to Agriseco Research, the profits of listed real estate enterprises are expected to remain negative in 2023, while some enterprises still record positive profits. Business results in 2024 may be difficult to grow dramatically due to the slow progress and absorption capacity of the economy . This is a pivotal year for the recovery of the entire industry.

Therefore, Agriseco raised its view from cautious to neutral on the real estate industry and recommended that investors consider evaluating and selecting real estate stocks of companies with large land funds in the handover stage; focusing on the affordable and mid-range housing segments and maintaining their position in the context of economic downturn and real estate difficulties.

Source