Vietnam’s real estate market on a path to recovery

Vietnam’s real estate market has been showing signs of recovery despite current challenges faced by the sector this year, according to the Vietnam Real Estate Association (VNREA).

The association said that many real estate developers continue to face difficulties in meeting their profit targets this year, with data showing a significant drop of 20% in revenue and 43% in profit, primarily due to a sharp decline in sales compared to 2023. Lingering issues from a bad year have haunted businesses, leaving up to 60% of them struggling to achieve their financial goals this year.

Despite these difficulties, housing demand remains robust, with a healthy absorption rate reflecting strong growth in mortgage activities. This trend signals recovery, especially in buyer confidence. One of the pivotal factors driving the gradual recovery of the real estate market in 2024 was the introduction and implementation of over 20 circulars and decrees in Q3 and Q4 this year.

These regulations guided the implementation of revised laws on land, housing and real estate business operations. By addressing numerous legal hurdles, the new policies have introduced transparency and consistency in administrative processes, covering everything from land valuation and acquisition to related fees.

As Q4 draws to a close, real estate businesses are struggling to cover financial leverage with limited cash flow. Excessive reliance on leverage from 2021 to 2023 for project development combined with large inventories left many firms in a precarious position financially. As 2024 comes to an end, many real estate firms have achieved only half of their annual revenue and profit targets.

Meanwhile, according to a recent report by VIS Rating, sales in Vietnam’s two largest cities, Hanoi and Ho Chi Minh City, surged by 48% in Q4 2024 compared to the previous quarter. Yet, revenue and profit for developers in these major cities declined by 20% and 43% respectively year-on-year. Consequently, over 60% of businesses said they were unlikely to meet their targets on schedule.

To make matters worse, VIS Rating's findings showed around 22 trillion VND or 865 million USD in bonds issued by developers will mature by the end of 2024, most of which have already faced delays in principal and interest payments. With low repayment capacity and stagnant financial performance, achieving success in 2024 remains a formidable challenge for the real estate sector.

Nonetheless, by late 2024, the market has witnessed a swift rebound in transaction volume, driven by strong housing demand and positive legal reforms. These factors provide a brighter outlook for the sector in early 2025 and beyond. Improved cash flow from new supply has eased the repayment pressures on developers, helping the market regain stability after a prolonged period of difficulty.

Next year's outlook

Compared to 2022 and 2023, when the industry faced severe supply shortages due to financial, legal, and liquidity pressures, this year saw firms gradually regain momentum to restart projects, said experts.

According to CEO of SGO Homes Le Dinh Chung, real estate firms' access to capital has improved markedly, thanks to abundant credit availability and reduced lending rates. This has enabled businesses to manage cash flow, restart projects and increase supply.

Looking ahead to 2025, Associate Professor Dr Tran Kim Chung, former deputy director of the Central Institute for Economic Management (CIEM), said there are three possible scenarios for the real estate market: a slight decline, stagnation or growth. He is optimistic that the market is most likely to grow at a solid pace.

"Alongside external support, real estate enterprises must restructure their operations to overcome difficulties, restart stalled projects and strategically invest in new developments. This will help paint a brighter picture for 2025," said Chung.

Business insiders have long maintained that a robust recovery will require decisive support from the Government and local authorities. The Government must continue to refine the regulatory framework to ease obstacles for real estate projects and accelerate infrastructure development, while local authorities must collaborate to assist businesses in resolving challenges and reviving economic activities./.