The property market, especially the residential segment, has almost touched the freezing point, with most high-profile developers holding a downbeat view on 2011 and having revised down their business targets for the year.
Several major realty developers in their business reports presented to shareholders this week said the outlook was somber, and they had to shift their core business to other spheres to stay profitable.
Hoang Anh Gia Lai (HAGL), a well-known property developer with numerous high-end projects in HCMC, has downplayed realty business which has been its strength for years. In its general shareholders meeting held in HCMC on Tuesday, the group revised down its business target for this year given uncertainties ahead.
HAGL chairman Doan Nguyen Duc explained to shareholders that the group’s board had envisaged a pre-tax profit of VND3.6 trillion at their meeting in the fourth quarter of last year but had to scale down the target to VND3 trillion given the current situation.
The real estate market, especially the apartment segment, has not showed any sign of recovery in the year to date, he said.
“HAGL had virtually not done any real estate transactions throughout the first quarter of this year,” Duc said, adding the group now had apartment projects in HCMC available for sale, including Phu Hoang Anh, Thanh Binh and Hoang Anh Incomex, but it was still waiting for positive signs of the market.
Nguyen Van Su, general director of Hoang Anh Gia Lai Corp. (HAGL), told the corporation’s shareholders that the group earned more than VND2.8 trillion from property projects in 2010 compared to over VND3.37 trillion in the year before. Last year, real estate still accounted for 62.6% of the group’s profit of over VND4.52 trillion.
Other big players are also on the same boat.
In a message to shareholders, Le Chi Hieu, chief executive officer of Thuduc Housing Development Corporation, said 2011 would be a challenging year for all local property developers. Many property developers in HCMC are even facing the risk of going bankrupt because of a severe capital shortage coupled with accumulating stocks in the absence of buyers, he said.
Hieu said Thuduc Housing would have to adjust down the profit target set for this year on the one hand, and put on hold several property projects on the other hand.
With the same business strategy, Kinh Do Corporation said it would not expect profit from the real estate sector this year. Last year, Kinh Do Corporation obtained a hefty profit of VND801 billion, with real estate contributing half of the amount, but the picture for this year will be quite different.
Kinh Do only sets a profit target of VND500 billion for this year, but it stresses that it will continue its strategy to become a food service group rather than a realty-inclining business group.
Kinh Do said real estate in the past two years, 2009 and 2010, provided an opportunity for it to earn profits and to create the breakthrough development via real estate investments. However, the company would now concentrate its business activities on production rather than property given the insurmountable challenges on the property market now.
Worsening business environment
2010 has been referred to as a tough year for property companies, but developers have managed to ride out tough times.
Thuduc Housing Development Corporation has reported its 2010 business performance to shareholders, saying the company obtained a total profit of VND327.5 billion, or 9.9% higher than the initial target.
Similarly, Binh Chanh Construction and Investment Joint Stock Company, has beaten the 2010 target, earning a profit of VND282.5 billion.
Bui Minh Chinh, general director of Petrocapital and Infrastructure Investment JSC (Petroland), commented that 2010 was really difficult for real estate companies, including Petroland. However, the company has ridden through the year with a total profit of some VND232.5 billion, far exceeding the target of VND148 billion set for the year.
But there is little chance for realty developers to escape this year unscathed, as macro-economic policies do not support them.
While secondary investors have staged an exodus from the market after shouldering huge losses in the past two years, genuine buyers now keep a wait-and-see attitude.
To make matters worse, banks as the key source of capital for home buyers have also shied away from the financing business.
Do Lam Dien, director for the southern branch of Corporate Banking, an affiliate of the Maritime Bank, told the Daily on Tuesday that the bank has run out of funds for lending to the property sector.
Commenting on the market, Dien said mid-end apartments with prices under VND20 million per square meter could be sellable as they suite the pockets of buyers for accommodation. However, buyers cannot afford bank loans to buy apartments as the current interest rate at over 20% a year is discouraging many people in need of accommodation.
Several property developers are in panic now, fighting one another to woo home buyers by offering numerous incentives, including sharp discounts, high-valued gifts, and longer installment plans.
But, as Duc of Hoang Anh Gia Lai pointed out on the sidelines of his company’s shareholders meeting on Tuesday, the prospect for liquidating property projects, especially condo ones, was quite dim, since many banks have completely choked off credits for the sector.