Investor's payment capacity

VIS Rating expects the debt repayment capacity of real estate developers to begin improving from the weak levels of 2023-2024.

Expectations are rising for real estate developers' ability to repay loans.

VIS Rating expects the debt repayment capacity of real estate developers to begin improving from the weak levels of 2023-2024.

A report on the residential real estate sector, based on data from the top 30 residential real estate companies by revenue, published by VIS Rating yesterday afternoon (November 28th), indicates that real estate sales in Hanoi and Ho Chi Minh City in Q3 2024 increased by 48% compared to the previous quarter, the highest level in the past four quarters. Housing demand remains strong, evidenced by a high absorption rate and robust growth in home loan lending at 7% compared to only 1% in the same period last year.

Expectations of rising home prices, combined with reduced down payments, will continue to fuel strong demand from homebuyers. Many developers such as VHM, NLG, KDH, AGG, and HDC have recorded increased sales, mainly in the high-end segment. However, the revenue and profits of the developers on the report's watchlist for the first nine months of 2024 decreased by 20% and 43% respectively compared to the same period last year due to reduced handover volumes resulting from weak sales in 2023. Therefore, it is projected that more than 60% of developers will not meet their full-year 2024 profit targets.

It is projected that over 60% of developers will not achieve their profit targets for the entire year of 2024.

Numerous new real estate regulations recently issued will boost the development of sales projects in 2025 and beyond. More than 20 decrees and circulars were issued in the third quarter of 2024 to support the implementation of the amended Land Law, Housing Law, and Real Estate Business Law. Developers will have clearer guidance on procedures and will be able to promote the development of new projects. These aspects include land valuation, land acquisition, fees, and many other factors.

Furthermore, the government 's efforts to expedite legal approvals for prominent real estate projects since the beginning of 2024 have led to an increase in newly licensed and eligible projects for sale in Q3 2024.

In 2025, VIS Rating expects developers to significantly increase the number of new projects, helping to improve their sales and cash flow. The industry's debt repayment capacity remained weak in Q3 2024, but leverage levels are expected to be controlled thanks to new regulations, and developers ' cash flow will improve due to increased sales.

As of Q3 2024, more than half of the developers tracked by VIS Rating had weak leverage and debt repayment capabilities. This was primarily due to excessive leverage used to develop projects during 2021-2023 and inventory of unfinished projects and unsold inventory as market sentiment deteriorated since 2023.

Expectations are that the debt repayment capacity of real estate developers will begin to improve from the weak levels of 2023-2024.

However, as sales progress improves, VIS Rating expects the debt repayment capacity of real estate developers to begin improving from the weak levels of 2023-2024.

With positive prospects for new project sales and cash flow, developers ' debt coverage ratios will gradually improve. New regulations issued in July 2024 will limit the use of debt for new projects. Therefore, VIS Rating expects debt growth to continue to slow from its high of 15% per year in the 2022-2023 period.

Approximately 22 trillion VND of bonds issued by developers will mature in Q4 2024, with the majority having defaulted on principal and interest payments in previous periods. About 13 trillion VND of bonds maturing in Q4 2024 had already defaulted on principal and interest payments in 2023 and successful negotiations with bondholders have resulted in extensions to the following year.

Approximately 13 trillion VND worth of bonds will mature in the fourth quarter of 2024.

These bonds were issued by companies affiliated with real estate conglomerates such as Van Thinh Phat, Novaland , Hung Thinh, and Sunshine.

The remaining 9,000 billion VND in bonds were issued by 11 companies, including 7 companies with weak credit profiles and high risk, mainly companies with no business activities related to real estate corporations, no operating revenue, and very little cash flow.

On the positive side, real estate companies' access to new funding has improved. These high-risk issuers will need to rely on liquidity support from related companies or seek bondholder approval for payment extensions to avoid defaulting on principal and interest payments.

Source: https://baodautu.vn/batdongsan/ky-vong-kha-nang-thanh-toan-cua-chu-dau-tu-bat-dong-san-phuc-hoi-d231253.html