return icon Vietnamnet.vn

Facilitating capital flows

Vietnam’s stock and property markets are struggling with volatile capital flows. If the situation is not properly tackled, dire consequences would be unavoidable.

Coping solutions should be sought to ease capital flows. Should the property market be rescued at all costs?

A duck in water and momentary hardships

The index of the property management and development sector jumped by 150% between May 2020 and Januray 2022. The steep rise of both stock prices and property prices resulted in huge profits for both enterprises and stock investors in 2021. Several property enterprises reported profits amounting to trillions of Vietnam dong, with one reporting a hefty VND30 trillion, on top of high profitability in 2020 envied by businesses in other industries.

Since January 2022, however, stock prices in this sector have plunged by a half. Tighter credits have dragged homebuying. Lately, many real estate stocks have crashed to their floor prices on bourse for many sessions on end, and worries are mounting over the financial health of enterprises that have issued private placement bonds.

However, third-quarter business reports of listed property firms show most of big-cap (over VND10 trillion) entities have recorded a positive net profit. Such data indicates that the great pressure on real estate comes not from their business efficiency, but from access to capital and cashflow.

Dredging capital channel and screening

Credit growth on an annualized basis started to slow down in April, and this tempo tends to continue in the rest of the year if the 2022 credit growth cap of 14% is to be adhered to, since some earlier months have seen a steeper rate, at 16-17% year on year. To make matters worse, Tan Hoang Minh and Van Thinh Phat scandals occurred, sending the corporate bond segment into a tailspin. Many enterprises had to buy back bonds before maturity, and could not issue new bonds. The capital channel via two important debt instruments was stonewalled, hitting enterprises in other industries as well, and the panic also spread to the stock market, causing the steepest plunge among stock markets worldwide since May  2022.

If the capital blockage prolongs, consequences will be painful as cash-strapped enterprises cannot secure funds for operations, possibly culminating in a domino-effect collapse. However, it is noted that the corporate bond pressure is largely exerted on unlisted firms, while for listed firms, the pressure from the amount of bonds on the market can be absorbed by profits.

To facilitate capital flows on a selective basis for real estate enterprises, certain policies can be weighed as follows.

First, support for first-time buyers of houses via tax incentives or even a subsidy. This will stimulate demands and the cash flow will help improve liquidity for property firms.

Second, property prices in certain areas have surged by 20-25% a year, generating robust profits for property firms. Therefore, those firms facing the liquidity crunch must lower prices or profit margins in line with market principles, and incentives are not necessary for those enterprises that have enjoyed a higher profit margin than the market average.

Third, for enterprises unable to settle due bonds, it is recommended that their projects be restructured by asset management companies, with an option to be a swap of bonds for housing units. In case of disagreement, the asset management company can utilize such assets or transform them into a real estate investment trust.

Fourth, for enterprises still implementing their projects but without being allowed to renew credit contracts, their debts should be extended, with the priority given to those enterprises with near-completion projects.

As such, deblocking capital access for the real estate sector at a time of exhausted credit limit and corporate bond turbulence will aim at supporting first-time homebuyers while investors using financial leverage for a profit will have to discount their properties, which will help cool down the overheated property price.

More importantly, support policies need to be designed on a selective basis, without rendering support for all stakeholders at any cost. Ailing enterprises that have cashed in on policy loopholes in the recent past should be eliminated, while prestigious enterprises should be given a lifeline to survive momentary hardships.

MORE NEWS

Vietnam among top 10 best places to go for budget honeymoon

The nation has been listed among the top 10 best places to go for a budget honeymoon in 2023 by prestigious global travel website Lonely Planet.

Vietnam’s industrial production to rise 6.6% in 2023: S&P Global

Vietnam is predicted to record a rise of 6.6% in industrial production in 2023, according to S&P Global Market Intelligence.

Vietnamese athletes to receive 1 mln USD for Paris Olympic gold

Vietnamese athletes competing in the Paris 2024 Summer Olympics, scheduled for July 26 to August 11, 2024, will receive 1 million USD in bonus for each gold medal; 500,000 USD for silver and 200,000 for bronze.

VIETNAM NEWS HEADLINES FEBRUARY 1/2023

Party chief’s book on corruption fight to make debut

Google Doodle honours first female Vietnamese newspaper editor Suong Nguyet Anh

The world’s most popular search engine Google has paid tribute to Suong Nguyet Anh, the first female editor of the nation’s first women’s newspaper by posting a drawing of her on its homepage on February 1.

Banh Cuon among world top 10 dishes visitors should try in 2023

Australian travel magazine Traveller has listed Banh Cuon, Vietnamese steamed rice rolls, among the top 10 best meals from around the world that visitors should try in 2023.

Party chief directs key tasks for new year

Party Secretary Nguyen Phu Trong on Tuesday chaired a meeting of the Secretariat of the Communist Party of Vietnam (CPV) Central Committee, mapping out key tasks for the new year.

VIETNAM BUSINESS NEWS FEBRUARY 1/2023

Domestic market to drive tourism recovery in 2023: insider

Some big companies made profits in 2022, but others incurred losses

While Duc Giang Chemicals and Binh Son Refining and Petrochemical have reported big profits for Q4 and the year 2022, Vietnam Airlines and leading steel manufacturer Hoa Phat saw big losses for the year.

Vietnamese couple help German bicyclist in distress

Trung and Nhung, a Vietnamese couple, on the way to travel across Vietnam on Tet holiday, saw a foreigner who was facing troubles because of strong winds in Ninh Thuan.

Vietnam develops green agriculture to increase exports to EU

Vietnam is paying attention to mobilising resources to invest in developing green agriculture with an aim to raising the market share of its agricultural exports to the European Union.

Vietnamese team comes first at Southeast Asian Fencing Championship

Vietnam secured the first position at the 2023 Southeast Asian Fencing Championship which has taken place recently in Malaysia.

2023 - Time for Edtech to thrive in Vietnam

Experts are positive about the development of Vietnam’s education technology (Edtech) market in 2023 if local Edtech companies can overcome post-pandemic challenges.

UK imports from Vietnam in 2022 put at over US$6 billion

United Kingdom (UK) imports from Vietnam amounted to US$6.06 billion last year, rising by 5.2% over 2021, according to the General Department of Vietnam Customs.

Five more registration officials in Hanoi prosecuted for soliciting bribes

Police of Hanoi’s Thuong Tin District has started legal proceedings against five officials at 2915D Registration Centre for taking bribes.
back_to_top