What should real estate businesses do to avoid "drowning on a pile of assets"?

Real estate market is still in a difficult position

According to the latest report of VARs, real estate directly contributes 15% to the country's GDP, with its influence spreading to 40 key industries of the economy such as construction, banking - finance, securities, insurance, tourism, agriculture...

The real estate market plays an important role in the economic "ecosystem", affecting the production chain and influencing macroeconomic stability, growth, social security and employment.

What should real estate businesses do to prevent bird deaths in the field? Image 1 — The real estate market is still in a difficult situation. (Photo: DT)

However, since mid-May 2022 until now, due to many objective reasons such as epidemics, market growth cycles, reduced economic growth, and market difficulties.

In addition, there are subjective reasons due to a series of tightening policies on credit, corporate bonds, ... as well as legal problems in the process of project implementation that have not been thoroughly resolved, forcing the market to fall into a state of stagnation. Interest rates have remained high since the end of 2022, slightly decreased at the beginning of this year but are still at a high level for businesses to endure.

The pressure of increasing financial costs while cash flow is "scarce" due to not being able to sell goods, not being able to mobilize capital from bonds, not meeting credit loan standards,... makes the health of businesses increasingly weaker.

The prolonged difficult situation not only affects real estate market participants but also causes stagnation in a series of other related industries.

VARs survey data with members who are real estate service businesses shows that if the market situation continues to be difficult, up to 23% of businesses can only maintain operations until the end of the third quarter of 2023, 43% of businesses can survive until the end of 2023.

If a timely “exit” is not found, the market will likely face the exit scenario of a series of entities, from real estate investment and development enterprises to real estate service enterprises and real estate brokers. Many workers will lose their jobs, affecting social security.

Must save yourself, so as not to "drown in a pile of assets"

Recently, the Government has issued a series of policies to help businesses defer and postpone debts. However, to save themselves, real estate businesses must proactively review their resources and review their existing projects.

What should real estate businesses do to prevent bird deaths on real estate? Image 2 — Illustration photo. (Photo: DC)

Only potential projects that the business has the capacity to implement should be retained. Call for investment, joint ventures, partnerships, and sell part or all of projects that cannot be continued.

Mr. Nguyen Van Dinh, Chairman of VARs, said that enterprises need to proactively seek customers/investors or contact professional units to support connecting with those who want to cooperate in investment or buy back the project. To reach an agreement soon, enterprises need to reduce expectations, even be willing to accept selling at a loss, "cannot face difficulties but still demand profit".

“We must balance between lowering expectations to reduce the cost burden, bringing cash flow back to re-establish the apparatus, and implementing feasible projects, and continuing to “hold” projects, shouldering costs, “getting bogged down” in increasing profits, and facing the risk of “drowning on a pile of assets,” Mr. Dinh commented.

In reality, many businesses, just trying to hold on, while their capabilities are not enough, have pushed themselves into a dead end with all kinds of "interest on interest". Then they receive the bitter fruit of a huge debt, with interest many times greater than the principal.

There are still investors willing to invest in potential projects.

VARs' report also shows that for over a year now, the mergers and acquisitions (M&A) market has recorded a gradual increase in heat.

Some businesses have spent a lot of money on M&A to seek opportunities to expand the market and improve the profit margin of their business segments. Many groups of investors with "large" cash flows are also looking for opportunities, ready to invest in potential projects.

Among them, we must mention the capital flow from foreign investors that has been and will continue to flow into Vietnam in the coming time. Most of these investors are aiming for projects with relatively complete legal documents to avoid risks.

“This is an opportunity for investors holding many “clean” projects to sell projects or cooperate, creating value for both sides. It is a direction to help businesses manage cash flow to pay debts, avoid collapse and dissolution. Or bring cash flow to continue implementing other projects. Prevent loss and waste of land resources, restore production and business activities, and bring goods to the market,” Mr. Dinh commented.

In order for foreign capital to continue to flow strongly and become a "boost" for the market, authorities need to continue to improve the legal framework as well as investment incentive policies for foreign investors to invest in Vietnam.

At the same time, the State needs to continue to have solutions to thoroughly remove difficulties and legal problems for projects that are not eligible for transfer, prioritizing urgent projects that are suitable for market needs.

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