Real estate living on borrowed time

Two apartment blocks in HCM City. The economic downturn has driven the realty sector into stagnation for quite a while. — VNA/VNS Photo Hồng Đạt

HÀ NỘI — Mass dissolution and bankruptcy can strike so unexpectedly in the real estate sector that firms feel like they are living on borrowed time.

"Misery, unattractiveness, deficiency" have been the three words used in a recent report by the Vietnam Association of Realtors (VARS) to describe the dire situation of realty firms amid the economic downturn.

The report cited supply shortages as a factor behind the sector's stagnation. Housing supply in 2022 dwindled down to merely 20 per cent of what it was in 2018. In Q1/2023, a paltry 25,000 apartments went on sale, but most of them were excess inventory.

The situation is not better on the demand side, which has been on the decline since last year. The number of real estate deals reached 19,000 in 2022, paling in comparison with that in 2018 (over 110,000). In Q1/2023, the market became a shadow of its former self, with merely 2,700 deals. 

The waning confidence of homebuyers in the sector was the first reason behind their tightening budget on realty properties. High deposit rates also play a part by incentivising investors to put their money in banks rather than in real estate.

Another reason involves the global economic downturn that has been sapping demand across the board, and real estate was among the sectors bearing the brunt of the weakening demand. 

DKRA Group said the resort real estate was stuck in limbo as most of the products in the segment can't sell. The global economic depression hit so hard that the demand for villas and shophouses fell by 98 per cent and 99 per cent, respectively, in April.

A VARS expert said financially-drained realty firms were 'drowning'. Despite their attempt to trim ranks, few could keep their heads above water.

"Problems in the sector remain unsolved for quite a while, driving firms into distress," said the expert. 

He also said lifesavers had been thrown at the sector since early 2022 to keep firms afloat but many couldn't make it owing to the severity of the downturn.

In the first five months of 2023, 554 realty firms went out of business, up 30.4 per cent year-on-year. Others became worse off as their revenue and profit fell by nearly 7 and 40 per cent, respectively.

Six of the 20 largest had to shed staff to offset the fall in sales. A noteworthy one was Đất Xanh Group, which cut headcounts by 41 per cent last year. Novaland Group followed suit with a cut of 20 per cent. 

But the bad news doesn't stop there. Layoffs continued into 2023, with more employees losing their jobs here and there. Notably, Đất Xanh made additional 1,384 redundancies in Q1.

"Firms have been stretched to their limit . If they are left drowning in hardship for longer, mass bankrupcies would be inevitable," he added.