Headwinds for property outlook

In 9M22, corporate bonds related to real estate saw a significant decline of 67.0% yoy. 

>> Property market faces liquidity, other severe problems: HoREA

Tighter financial conditions

As commercial banks steadily lowered their lending exposure to real estate in order to comply with the tightened ratio of short-term funding used for medium and long-term loans throughout 2020–2021, the Vietnamese real estate sector saw a boom in corporate bond issuance by property developers. By the end of the third quarter of 2012, the outstanding corporate bond value of real estate developers was around VND507 trillion, or around 34% of the balance of corporate bonds in Vietnam and 6% of GDP.

Since mid-2022, the Ministry of Finance has examined the legal framework with stronger criteria for issuers, particularly in private placement, in order to mitigate any additional risks and improve market transparency.

According to data by VNDirect, the total amount of corporate bonds issued fell by 43.5% year over year to VND248,603 billion, while the amount of buybacks was around VND142,200 billion in 9M22. In 9M22, corporate bonds related to real estate saw a significant decline of 67.0% yoy. Since September 2022, several real estate moguls have been detained as a result of corporate bond issuance fraud, which has caused retail investors to have doubts about the quality of corporate bonds and the issuers' capacity to make payments.

Currently, a key source of funding for Vietnamese real estate developers is bond issuance and bank loans. Pre-sales volume for 3Q22 had a significant fall of 40% qoq in both the HCMC and Hanoi markets. Many developers consequently find themselves cut off from sources of funding due to tightened bank loans, a stagnant bond market, and depressed presales.

A further VND20,000 billion in corporate bond value will mature in 4Q22F, and additional VND107,299 billion and VND112,061 billion, respectively, will mature in FY23 and FY24F. These all subject property developers' short-term liquidity to stress testing.

According to VNDirect's estimation, the corporate bonds issued by NVL and VHM would mature in FY23F for around VND26,500 billion, or 25% of the entire market amount due.

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Impact from rising mortgage rates

Following an increase in deposit rates as of early December 2022, the average mortgage rates of state-owned banks and private banks both increased significantly by 190 basis points (bps) year over year to 11.1% and 250 bps year over year to 12.0%, respectively. According to Mr. Chu Duc Toan, senior analyst at VNDirect, deposit rates would rise by an additional 50 basis points in 2023F, which might cause private bank mortgage rates to soar to 12.5–13% per year in 2023.

“Given the increase in prices and quickly rising mortgage rates in 2022-2023F, we anticipate an increasing unaffordability of mortgages. Even individuals who make double the Hanoi and HCMC average yearly salary of US$5,500–7,500 ($2,000–2,000 per square meter) may find it difficult to finance a mid-range apartment because the predicted payment–to–income ratio in 2022 will be between 80–100%. Additionally, it might be worse than anticipated in 2023 when millions of customers have to make greater payments because of the reset of loans”, said Mr. Chu Duc Toan.

Besides, a drop in new supply as the project approval process likely be delayed on waiting the amend Law of land. According to several developers’ new launch plan, the real estate sector’s new launches could be backloaded in 2023F on waiting the amend Law of land and weaker homebuyer sentiment from limit ed credit room, cost inflation and interest rate hikes.

“We expect the 2023F HCM city’s new condo supply still dim with 19,000- 20,000 units (-c.10% yoy) and c.15,000 sales volume units (-c.20% yoy). While new ready-built housing supply likely still sluggish in both HCMC and Hanoi, at 1,000-2,000 launches units in 2023F”, forecasted Mr. Chu Duc Toan.