As the real estate market falls, leverage returns to bite investors

Hanoi’s Huynh Thang bought a 60-hectare piece of land in the northern district of Dong Anh in December, but now its price has dropped by around 8%.

He had never invested in a property before and chose to buy it based solely on recommendations from friends and brokers, who told him the price could double within a few years.

He paid 3 billion VND ($128,000) for it, including 1 billion VND from a loan.

He tried to sell it, but in the last three months less than 10 people called him to ask questions, and no one was willing to pay the price they wanted.

“I paid 50 million VND per square meter, but now they are asking for 46 million VND.”

But he cannot continue to hold the land any longer since he has to pay around VND 15 million per month for the loan, which becomes a burden as it represents half of his income.

Thang is among many property investors nationwide who are stuck with land or houses because selling is not a viable option amid a market crash and loans are eating away at their monthly income.

Buildings in Hanoi. Photo by VnExpress/Ngoc Thanh

After the outbreak of real estate “fever” that raged late last year and early this year, demand began to fall in the second quarter, said the Vietnam Association of Realtors (VARS ) in a recent report.

The use of leverage should be carefully considered, he warned, adding that investors should wait for “safer” opportunities in the future.

One report per real estate ad platform Batdongsan.com.vn said searches for land in Hanoi fell 23% year-on-year in the second quarter, while in HCMC the drop was 11%.

Tan, from HCMC’s Nha Be district, made a killing on the property in 2016-18 using leverage of five to seven times his investment, but this year has been disastrous.

His bank loans cost him 250 million VND a month in interest, but there are few buyers, making selling at a loss his only option.

“I recently sold land at a 12% loss to reduce the debt burden. If interest rates continue to rise, I could run out of money.”

Houses in eastern Ho Chi Minh City. Photo by VnExpress/Quynh Tran

Economist Dinh The Hien said the real estate market is experiencing weak activity because the government has tightened credit to the sector to limit speculation and banks are restructuring their loan books after splurging on the sector in recent years. .

A prime minister’s decree issued on Monday says banks must prioritize credit for building homes for workers and other low-income people over “risky” projects.

The decree also aims to regulate the raising of funds by real estate companies that seek to speculate or manipulate the market. He wants the Ministry of Finance and the State Bank of Vietnam to closely monitor the bond issues of real estate development companies.

Total outstanding loans to the real estate sector now stand at over VND 2 trillion, or 20% of all loans, according to the State Bank of Vietnam. Growth in loans to the real estate sector is expected to reach 9-10% this year, he added.

Transactions, and perhaps prices, are expected to continue falling this year, he added.

VARS Chairman Nguyen Van Dinh said it is difficult to sell a property now because buyers are uncertain about profitability and the market in the near future, and they choose to watch the market rather than make investments.

Land prices soared last year and in the first quarter of this year, with many localities posting double- and triple-digit increases.

But many places are now seeing a decline in interest.

Property searches in some areas of Hanoi like Quoc Oai, Dong Anh and Gia Lam fell 20-29% year-on-year in the second quarter, according to Batdongsan.com.vn.

Khanh Ha, who bought land in Quoc Oai in May last year at 22 million VND per square meter, now wants to sell it for the same price but there is little interest.

“I borrowed 800 million VND from the bank and relatives to buy the land, but now I’m struggling to pay the monthly interest so I want to sell.”

When she bought, she heard rumors that property prices in the area could double within a year.

Phan Cong Chanh, CEO of property developer Phu Vinh Group, said there are huge risks involved in using leverage for property investment, especially when the market falls.

For Thang, paying a hefty amount of interest over the past few months has been a lesson that investing in real estate isn’t as easy as he thought.

“I invested without thinking, and now I’m paying for it.”