VietNamNet Bridge - The number of newly established real estate firms in the first quarter of 2015 soared by 50 percent compared with the same period years before.

The real estate market has made a volte-face recently with the improved purchasing power and the sharp increase in the number of new businesses joining the market.

In the first two months of the year alone, 81 dissolved real estate firms resumed operation. The figure represents a 53 percent increase compared with 2014.

According to the Ministry of Planning and Investment’s (MPI) Foreign Investment Agency, 10 real estate investment projects were registered in the first four months of 2015 with investment capital of $327 million, accounting for 8.8 percent of total investment capital.

Analysts believe that investors are rushing to set up real estate firms at this moment to dodge the new regulation, expected to take effect on July 1. The new regulation stipulates that real estate firms will have to have legal capital of VND20-50 billion at minimum. At present, the required minimum legal capital is VND6 billion.

In principle, the number of newly established businesses is seen as an indicator of market status. However, analysts say they can see high risks in the rush. 

The majority of existing real estate firms (60 percent) were established with legal capital of less than VND20 billion. As such, only 40 percent of firms have more than VND20 billion in legal capital, though VND20 billion is still “not high” for businesses to implement real estate projects.

The watchdog agency has every reason to raise the required minimum legal capital to VND20-50 billion. Real estate firms need to prove their financial capability by having sufficient legal capital. 

The analysts also warned that small businesses, established “in the rush”, would not be able to survive the competition, expected to be fierce in the market.

Do Thu Hang from Savills Vietnam, a real estate service provider, noted that because of the special characteristics of the real estate market, real estate developers need to have long term capital. A business short of capital and lacking professionalism will not be able to survive the competition.

Truong Thanh Duc, chair of Basico, a law firm, said many real estate firms have been established recently because investors had tried to dodge the law. This is not what the State wants to see. 

However, he says there is nothing to worry about. He noted that investors now follow long-term development strategies, and no longer pursue “hit-and-run” strategies as before.

Duy Anh