A report on the health of Vietnam's real estate market released in June by the Vietnam Association of Realtors (VARS) noted that real estate development firms are in a state of "suffocation".

It warned that if the situation does not improve, 23 percent of enterprises will only be able to exist until the end of the third quarter and 43 percent until the end of 2023.

Since early 2022, the government has applied both direct and indirect measures to revive the real estate market. However, the recovery has been going slowly.

Tran Nguyen Dan, a lecturer at HCM City Economics University, said there has been no clear sign of the recovery of the real estate market. 

Transactions have been reported, but the value is insignificant. No one can say for sure if these are real transactions or speculative transactions arranged by brokers.

The market is recovering slowly because people are looking forward to capital with low interest rates. The deposit interest rates have decreased, but lending interest rates have not.

Unable to access bank loans with reasonable interest rates, borrowers also find it difficult to prove their debt payment capability. Commercial banks are being very cautious in lending.

Many real estate investors have street-front houses for lease. As businesspeople give back retail premises to lessors because of poor business performance, investors face problems in cash flow and don’t have money to join the market.

When making investments in the real estate sector, investors expect money from two major sources – their core business and profits the real estate brings.

In current economic conditions, investors are worried about the prospect of recession in the future, and so they tend to hoard cash. 

The deposit interest rates are on the decrease, but deposit volume is on the rise. Many real estate investors choose to deposit money at banks as they believe this is a safe shelter. 

“In current conditions, real estate investors don’t want to ‘catch falling knives’,” he said.

Dan doesn’t think that pumping money into real estate firms is a good solution, because with their current financial situation, this is just pouring money into a bottomless pocket.

When people who have real demand for accommodation and can access bank loans, real estate firms will have money. 

Providing loans to home buyers won’t increase risks for banks and won’t break the system. Currently, three-quarter of mortgaged assets are real estate. When the market declines, banks will re-assess mortgaged assets to mitigate risks. In general, loans to real estate firms bear higher risks.

Asked about solutions to help recover the real estate market, Dan said when the real estate ecosystem comes to a standstill, which is associated with signs of recession, the government needs to be the biggest spender.

The government’s spending will act as the "bait capital” to push the market, creating jobs to make up for the shortfall in expenditures.

In theory, there are two important factors in the total demand of the economy: the spending of the government and the spending of households and individuals. Once the two indexes improve, the economy will get better.

At present, the spending of households is decreasing because of Covid-19 and wait and see attitude. So, the only choice for now is that the government expands fiscal policy and steps up public investment.

In the current tough period, the government should not set tax collection targets for localities. It would be better to further cut taxes and reduce corporate income tax and personal income tax.

To boost economic growth, the government needs to accept an increase in public debt and a higher state budget deficit for the next five years. 

Once the economy recovers, the government will be able to collect more taxes, which will allow it to solve the problem of the budget deficit.

Many localities have announced their plans to develop low-cost housing products. The State Bank of Vietnam (SBV) has launched the VND120 trillion credit package to fund the social housing development plan. However, no dong has been disbursed by the end of May.

Anh Phuong