No sign of debt crisis among listed property developers

Out of 11 sectors, the real estate industry had the worst 2Q22 results performance.

>> What are the prospects for HCM City’s property market?

Out of 11 sectors, the real estate industry had the worst 2Q22 results performance, which was caused by high capex and a dearth of property handovers. In particular, 2Q22 net profit decreased by 51.3% yoy while the combined revenue of listed property developers declined by 58.4% yoy.

However, excluding VHM, the property developer's net profit would have increased positively 52.7% yoy in 2Q22. VHM (-95% yoy), NVL (-43% yoy), DXG (-56% yoy), CRE (- 33% yoy), and AGG (-37% yoy) were the major laggards in 2Q22 net profit. Updates on significant publicly traded property developers' 2Q22 earnings:

Due to a shortage of property handovers, VHM had a considerable decline in revenue and net profit in the second quarter of 2012, falling by 84% and 95%, respectively, year over year.

The majority of NVL's 2Q22 revenue growth, or VND4,530bn in total, came from property handovers of previously sold units at three megaprojects. However, due to a decreased contribution from one-time gains, 2Q22 NP fell by 43% yoy to VND749 billion.

Due to a 71% yoy decline in revenue from property handovers, DXG's 2Q22 revenue dropped by 56% year over year to VND1,550bn. In the meantime, due to challenges in the real estate sector, brokerage revenue fell by 21% year over year to VND557 billion. Due to this, 2Q22's net profit decreased 56% year over year to only VND133bn.

>> Real estate developers still face challenges in fundraising

Thanks to handovers at Flora Akari (90 units valued at VND320 billion) and Valora Southgate, NLG recorded 2Q22 revenue rising by 209.6% yoy to VND1,241 billion (139 units valued at VND774bn). Due to a greater contribution from high-margin property handovers, the gross profit margin in 2Q22 increased by 16.2% pts year over year to 45.2%. Thus, 2Q22's net profit increased by 135.5% year over year to VND111 billion.

Meanwhile, concerns over China's property loan issue have spread throughout Asia's real estate industry. A combination of finance issues and a steep decline in presales is posing problems for many private Chinese developers. The latter is a result of a loss of confidence among homebuyers, which led to their default on their obligations. Following certain developers' decision to delay the building of some projects due to financial issues, the local media stated that homeowners were refusing to make mortgage payments.

Despite refinancing challenges, Mr. Chu Duc Toan, senior analyst at VNDirect, believes that the improvement in contracted sales and operating cash flow in 1H22 should support the debt maturity of Vietnamese listed property businesses in the following 12 months. Additionally, he observes that the majority of Vietnamese listed property developers have sound financial standings as of the end of the second quarter of this year, with an average net D/E ratio of 0.3-0.4x and a high percentage of cash and cash equivalents of 15-20% of total assets.

In addition, Vietnam's monetary policy has been tightly under control, and the State Bank has recently increased its oversight of real estate loans. According to Mr. Chu Duc Toan, the final adjustment to Decree 153/2020 on "issuing corporate bonds" may be published shortly, reopening the door for enterprises to access the bond capital market, which is a crucial source of funding for Vietnamese real estate development companies.

As a result, VNDirect said there would be no sign of debt crisis among listed developers in the next 12 months.