Removing obstacles for bonds and real estate.

In its recently published report on the real estate and housing market, the Ministry of Construction stated that real estate businesses are facing numerous difficulties. In particular, the number of real estate businesses declaring bankruptcy or dissolution in 2022 increased by 38.7% compared to 2021.

Difficulties piled upon difficulties.

This agency assessed 2022 as a challenging year for businesses operating in the real estate sector, with some corporations reducing their workforce by up to 50% to cope with difficulties. The main reasons were difficulties in accessing credit, issuing bonds, and raising capital from customers, leading to many businesses lacking capital and having to delay or temporarily suspend project implementation.

Furthermore, rising lending interest rates, foreign exchange rates, fuel prices, and construction material prices have led to increased business costs, impacting business operations. The difficulty for customers to access bank loans for real estate purchases also indirectly affects the liquidity of real estate products and projects; businesses are unable to sell their products to recover capital and reinvest.

Furthermore, from the end of 2022 to the present, some businesses have also faced pressure to repay bonds to investors ahead of schedule due to various reasons, including changes in policies controlling the issuance of corporate bonds.

According to a report on the Vietnamese bond market by the Vietnam Bond Market Association (VBMA), the total volume of corporate bond issuance last year reached VND 255,163 billion, a decrease of 66% compared to the previous year. The issuance value of most sectors in 2022 declined compared to the previous year, notably the issuance of bonds by real estate companies decreased by as much as 80.8% year-on-year amidst several unfavorable macroeconomic factors.

Difficulties in accessing capital have significantly impacted buying and selling activities in the real estate market. (Photo: TAN THANH)

Meanwhile, businesses had to repurchase bonds worth up to VND 210,830 billion ahead of schedule, a 46% increase compared to 2021. Of this, the real estate sector repurchased approximately VND 35,400 billion. This means that capital for real estate is not only being tightened but also significantly reduced compared to before, causing many businesses in the industry to face even greater difficulties. A series of recent loss announcements by businesses demonstrate this difficulty, such as Phat Dat Real Estate losing nearly VND 230 billion in the last quarter of 2022, Cen Land also reporting a net loss of VND 58.6 billion in the fourth quarter of 2022, and Dat Xanh Group losing over VND 400 billion..., many other large businesses also experienced sharp declines in revenue and profits.

The chairman of the board of directors of a real estate company with outstanding bond debt exceeding 200 billion VND stated that his company has accepted "losses and pain" to reorganize its investment portfolio and sell projects to escape the cycle of debt and interest payments. However, finding partners to sell to during this time is extremely difficult, as most real estate companies are running out of capital, and all assets are difficult to sell, not just real estate.

"The tightening of the corporate bond market too quickly and abruptly caught us off guard. What we are worried about right now is how to find capital to implement our projects, while many related policies and procedures have yet to be resolved. Therefore, what we need is for the government to quickly find ways to remove policy obstacles to support businesses in implementing their projects," this person shared.

Many solutions to overcome the problem.

Speaking with a reporter from the Nguoi Lao Dong newspaper, Dr. Nguyen Huu Huan from the Ho Chi Minh City University of Economics stated that the real estate market is facing difficulties in both input and output, especially with capital being tightly controlled. Therefore, to alleviate the capital constraints in this market, the State Bank of Vietnam needs to implement policies that clearly indicate support, including some level of short-term credit support, to rescue the liquidity of real estate businesses.

"Because the difficulties with corporate bonds cannot be resolved overnight, while real estate businesses urgently need working capital to continue implementing unfinished projects. Businesses can seek other sources of capital such as foreign loans, but they will face exchange rate risks because they have to borrow in USD, and not all businesses meet the conditions for raising international capital. Therefore, in the short term, credit capital is still needed to 'bear the burden' and contribute to the recovery of real estate businesses," said Dr. Nguyen Huu Huan.

According to Dr. Nguyen Huu Huan, not only are real estate businesses facing difficulties in accessing credit, but individual customers borrowing to buy houses for living or investment are also restricted in their access to capital or face high interest rates of around 15%-16% per year. Therefore, solutions are needed to stabilize or reduce lending interest rates as soon as possible.

Regarding solutions to the corporate bond problem, Dr. Le Dat Chi, Deputy Head of the Corporate Finance Department - Ho Chi Minh City University of Economics, believes that it is necessary to recognize it as an important capital mobilization channel for businesses besides bank credit. Therefore, measures should be taken to organize and manage the corporate bond market in the same way that banks must comply with lending regulations to protect depositors.

Meanwhile, financial and securities expert Lam Minh Chanh believes that the corporate bond market has recently caused many investors to lose confidence and have no intention of participating again. To restore the important role of corporate bonds, the following conditions must be ensured:

First and most importantly, all corporate bonds must be credit-rated by reputable rating agencies. This will allow investors to understand the risk level of each type of corporate bond. Second, regulatory agencies need to strictly control bond distribution. Absolutely no loopholes should be exploited to distribute privately issued bonds to the public. Third, only those with securities brokerage licenses should be allowed to advise on and sell bonds to investors. Avoid advising on bond sales by unqualified individuals such as bank employees.

Fourth, bond sales and consulting professionals must follow a detailed and rigorous consulting process to ensure investors clearly understand which corporate bonds they are investing in and the potential risks associated with those bonds. "If these things are done, corporate bonds will gradually recover and develop strongly, becoming a channel for providing capital to businesses, especially real estate businesses," emphasized expert Lam Minh Chanh.

From the perspective of the regulatory agency, Mr. Hoang Hai, Director of the Department of Housing and Real Estate Market Management - Ministry of Construction, said that the Ministry of Construction has proposed to the Ministry of Finance to submit to the Government amendments and additions to Decree 65/2022/ND-CP regulating the offering and trading of private corporate bonds in the domestic market and the offering of corporate bonds to the international market; to strengthen guidance and direction on the offering and trading of corporate bonds in the domestic market and the offering of corporate bonds to the international market in accordance with the law; and to control the capital raising activities of real estate businesses on the stock market, avoiding speculation, manipulation, and price inflation.

The Ministry of Construction proposes that the State Bank of Vietnam consider and propose a suitable credit ceiling management plan to support the economy; direct and guide credit institutions to facilitate access to credit for businesses, homebuyers, and investors. It also requests guidance and direction for credit institutions to quickly lend and disburse funds to eligible businesses and real estate projects in accordance with the law; prioritizing lending to social housing projects, worker housing, affordable commercial housing, and other types of real estate serving production and social welfare purposes with high efficiency and repayment capacity.

For localities, it is necessary to review and compile a list of housing and real estate projects in their areas; specifically assess the reasons and causes for projects that have received investment approval but have not been implemented or have been delayed. Based on that, focus on resolving legal and procedural difficulties in preparing investment for housing projects to increase supply to the market. Accelerate administrative reform, avoiding shirking responsibility or delays in resolving procedures for implementing real estate projects in the area.

Studying international experience

Dr. Can Van Luc, a member of the National Financial and Monetary Policy Advisory Council, said he had thoroughly studied 16 solutions to rescue China's real estate market and found that Vietnam could consider applying 10 of them.

"In fact, we have already implemented some solutions, such as tax deferrals/postponements, debt deferrals/postponements... We have also advised the Ministry of Construction, the Ministry of Finance, and the Government to research and find suitable approaches based on the actual situation in the country."

"For example, businesses have to accept discounts to sell certain assets in order to repay debts on time; negotiating debt extensions with bondholders in difficult circumstances, which is permitted by Decree 65. Exchanging money for goods, exchanging bonds for real estate – these solutions need state guidance to avoid potential legal problems. Businesses are allowed to restructure debt, meaning they are allowed to issue new bonds to repay old debts..." - Mr. Luc said.

(*) See the Nguoi Lao Dong newspaper from the issue dated January 30th.

Source: https://nld.com.vn/kinh-te/hoa-giai-kho-khan-de-phat-trien-go-kho-cho-trai-phieu-va-bat-dong-san-20230131213303926.htm