What does the future hold for real estate stocks?

After a dull and sluggish phase, the real estate market could regain its vigor.

>> Headwinds for real estate: Interest rates tend to pick up

A sharp drop in 1Q22 revenue

Due to handovers and construction activity disruptions in FY21 and 1Q22 caused by COVID-19, aggregated revenue of listed property developers declined 19.6% yoy in 1Q22. KDH (-83 percent year over year), NVL (-57 percent year over year), and DXG are among the major laggards (-39 percent year on year),...

Property handovers of pre-sold units at NovaHills Mui Ne, NovaWorld Phan Thiet, NovaWorld Ho Tram, Aqua City, and Saigon Royal drove NVL's 1Q22 revenue down dramatically 57 percent yoy to VND1,956 billion. However, net profit in 1Q22 increased by 101 percent year on year to VND1,079 billion, buoyed by a one-time gain from the revaluation of Da Lat Valley real estate company.

DXG's 1Q22 revenue declined 39.3% yoy to VND1,792 billion, owing to a 54.6 percent yoy drop in property handover revenue, as the company's significant projects are expected to be completed in 2H22F. Brokerage income fell 3.2 percent yoy to VND710 billion in 1Q22 due to dwindling fresh supply and the COVID-19 outbreak. As a result, 1Q22 net profit fell 49.2% year over year to VND270 billion.

Due to handovers at Flora Akari (99 units valued at VND248 billion) and Valora Southgate, NLG's 1Q22 income increased by 149.1% yoy to VND587.4 billion (64 units valued at VND251 billion). Since 3Q21, the Southgate project's revenue has been merged into NLG's revenue. Meanwhile, due to a lack of one-time income, 1Q22 net profit (NP) fell by 99.8% yoy to VND0.6 billion. The successful launches of five projects boosted NLG's 4M22 presales by 43.8 percent yoy to VND5,895 billion.

>> Headwinds for real estate: Challenges of fundraising

Impacts on both sides

Due to violations connected to land use rights auctions, land use envy, and tighter funding for the property industry, the property sector index has dropped 25.0 percent year to date since early-2022, which is more than the VN-Index's percent decrease (21.3%).

In the short term, VNDirect feels the property stocks have been shaken off. Because they have had to deal with some negative consequences.

First, house prices have risen significantly, particularly in decentralized and suburban areas, causing anxiety and pricing prospective purchasers out of the market.

Second, we see higher construction costs as a result of material price increases, particularly steel prices, which have risen by more than 20% since early-2022. Steel costs are accouting for 12-15% of total construction costs (based on industry estimates). If house prices maintain at their current high levels for the next two years, this might drive up prices.

Third, property developers faced difficulties in fundraising for development projects due to tighter-than-expected finance.

Fourth, higher-than-expected inflation and interest rates might wreak havoc on condo sales, particularly in the mid- and low-end segments.

Property stocks, on the other hand, have benefited from some positive triggers. While waiting for the Land Law 2013 revision to be submitted to the National Assembly for the fourth time in May 2022, the Government is developing a Decree to update and supplement six Decrees that guide the Land Law's implementation. This, along with Decree 148/2020, Circular 09/2021/BXD, should help to alleviate bottlenecks in the approval of residential projects and speed up the construction process. After a dull and sluggish phase, the real estate market, in VNDirect's opinion, will regain its vigor.