Markets & Prices
Last updated: Thursday, May 23, 2013
Creating Market ResiliencePosted: Tuesday, June 05, 2012
The prolonged lacklustre real estate market has caused painful bankruptcies, soaring bad debts, stagnant construction market, and other challenges. The performance of the real estate market and its subsequence are vital to economic stability. For that reason, the Government has adopted a number of measures to prop up this market.
Tax solutions are not strong enough
The most noticeable move in the Resolution 13 ratified in early May by the Government is tax relief solutions. The Government decided to reduce 50 percent of land rents in 2012 for economic organisations operating in trade and service fields. Project investors in financial trouble will also be granted a 12-month deferred payment of land rents. According to the General Department of Taxation, the underperformance of the market in couple with credit crunch has sent many companies to loss-making operations and tax debts. In addition, land handover and site clearance are slow while large rented areas are also the cause for arrears payment.
In mid-March, the Hanoi Taxation Department announced a list of companies owing land rents as of February 2012. A series of real estate companies owed land taxes with value amounting to trillions of Vietnamese dong. Many big companies failed to pay land taxes. For instance, Berjay-Handico12 Co., Ltd - the investor of Thach Ban urban zone in Long Bien district, was indebted over VND225 billion. It was fined VND78 billion for its failure to pay land tax. Hanoi Construction Joint Stock Company No. 1 owed VND176 billion of taxes arising from its investment in trade - service complex in 26 Le Van Luong Street. The high-grade housing and office complex project in Dai Mo commune caused VND127 billion of tax debts to Dai Mo Construction Engineering Joint Stock Company. Viet Hung Trade Joint Stock Company - the owner of Golden Land trade, service and housing complex, owed over VND73 billion and was fined VND26 billion. Tay Do Investment Export Import Joint Stock Company - the investor of Businesspeople Tower project - was indebted over VND27 billion.
On the list of companies incurring tax debts announced by the General Department of Taxation, there are very well-known names like Hoang Anh Gia Lai and Hanoi Construction Corporation.
Given huge tax debts, the 12-month deferral in tax payments is very meaningful to property companies. Without money, taxpayers will not be able to fulfil their duties while they are living growing pressures from the public, shareholders and business partners, let alone fears of being forced to pay taxes. In the context of crisis, taxpayers will not be imposed a penalty of 0.05 percent a month for paying tax in arrears.
Tax break is highly appreciated by taxpayers. But, according to industry insiders, this measure works in a short term only and is not enough to spur the market. Another concern is the progress of implementing the Government’s solutions. The Resolution 13 provides that land tax is decided by Provincial People's Council, thus slowing the enforcement of this solution.
The property market has been inactive for a long time and no one can tell whether the slump hits its bottom and begins an upward cycle. Hence, this measure just loosens the noose on the neck of property companies. The biggest and hardest problem is huge inventories. Being unable to sell their products, many projects remain incomplete while developers run out of money. The way-out for this market is the inflow of fresh capital which helps them speed up their projects and helps customers to buy. Enterprises can only survive when the market revives.
Budgetary solution is usually not as good as credit solution. Real estate companies usually borrow a lot of money from banks. The market is falling short of capital and financial support from banks will be much better and more effective. Tax payment extension only benefits profit-making companies and this source of money is also small in value.
Money is returning to banks
In fact, the State Bank of Vietnam (SBV) is loosening the monetary policy in the wake of easing inflation. Deposit rate ceiling was reduced to 11 percent per annum from 14 percent in two months. Real estate does not belong to four priority fields which enjoy concessional lending rate of 14 percent as provided by the central bank. Luckily, credit for nonmanufacturing is also widened. In mid-April, the SBV said it would instruct debt restructuring to facilitate businesses to troubleshoot difficulties and step up production and business activities. In the group of loans for real estate investment, restrictions are lifted for loans for building, repairing and buying houses to live, building, repairing and buying houses to sell and lease, and urban housing projects in cities, including projects to be completed in 2012 and afterwards. According to SBV Governor Nguyen Van Binh, credit valve for real estate sector has been loosened. To date, we can assert that credit for real estate sector has been significantly widened, except for some fields.
In reality, commercial banks started providing more loans for real estate. On May 28, - the first day deposit rate ceiling was applied, Vietnam International Bank (VIB) launched a new lending package for real estate. The size of the package is VND1,000 billion and the loan may equal to 90 percent of the asset value. The maximum term is 180 months. The package is expected to close on July 31, 2012 or whenever the value is used up.
In April and early May, Asia Commercial Bank (ACB) introduced preferential policies for customers borrowing for purchasing, building and repairing houses, bearing interest rate of 17 percent - 18 percent per annum. The Bank for Investment and Development of Vietnam (BIDV) also spent VND6,000 billion on property loans carrying interest rates of 16 percent. The Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) offered a soft loan package with an annual interest rate of 14 percent, which also covers real estate.
Notably, preferential credit policies for real estate sector are limited to 3 - 12 months. Many wonder a surge in lending rates after these packages are wrapped up.
Credit stimulus for real estate sector is now in place. In principle, the central bank has lifted up most restrictions on property loans. Urgent demand for housing in major cities will push the people to borrow to buy houses. This move will support the stronger and firmer resilience of the long-lasting lacklustre market.