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Saturday, February 4, 2023

Industries holding their breath for real estate recovery

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Recent policies from the Government and ministries have laid a sound foundation for the real estate market to bounce back in 2023. Notably, this long-awaited recovery will both brighten up the property market and positively impact the national economy.

Optimistic outlook for 2023

At the recent “Real Estate Market Forecast 2023” forum, many experts said the real estate market would gradually rebound from the crisis and grow healthily from the second quarter of 2023 when obstacles in legal procedures, economic growth, and credit policies are removed.

There is hope for recovery as the Government has seriously worked on solutions to eliminate difficulties for the real estate market and relieve anxiety in the business world, according to Nguyen Van Dinh, vice chairman of the Vietnam National Real Estate Association. “We believe the responses of the Prime Minister and relevant ministries will play an important role in facilitating the market recovery. Perhaps, the real estate market will develop steadily instead of booming like in the past,” he added.

Neil MacGregor, managing director of Savills Vietnam, predicted that Vietnam’s property market still has lots of potential to thrive in the next few years. This positive outlook comes from a stable economic base and rapid urbanization, with 36% of the population living in urban areas. The construction industry has recently set a goal of achieving 53.9% in the national urbanization rate in 2023, which creates more opportunities for the real estate market to develop in the future.

Moreover, the Government has launched a series of policies to promote market recovery, especially the expansion of the credit growth quota by 1.5-2%, equivalent to an additional VND240 trillion in money supply for the economy. In addition, the bond market has been closely inspected and reinforced to ensure that everything will go well in accordance with current regulations. The National Assembly approved the public investment plan in 2023 with a total budget of over VND700 trillion, creating a strong driving force for economic growth.

Economic thermometer

Along with the banking and stock market sectors, the real estate industry is considered an economic thermometer. Using a metaphor of two birds, Le Hoang Chau, chairman of HCMC Real Estate Association (HoREA) said: “When it bounces back and thrives, the housing market is just like a swallow that heralds springtime, followed by the recovery of the whole economy. When the market falls into a crisis, it will be like Wilson’s storm petrel, showing signs of economic slowdown. Therefore, actions should be taken to maintain the steady growth of the housing market.”

In fact, the economy benefits a lot from the real estate market’s prosperity. When the market bounced back strongly in 2016, the Ministry of Finance collected VND171 trillion in taxes and fees from the real estate market, including VND148 trillion related to housing projects and land properties, which was a five-year high.

The good growth of the property market created positive impacts on other sectors at that time, including the steel, cement, brick-making, furniture manufacturing, and construction industries. According to the Vietnam Steel Association, the production of steel, steel pipes, galvanized steel, and cold-rolled steel grew strongly thanks to the real estate market. Only in the first nine months of 2016, the steel consumption reached 8.4 million tons, up 27.8% year-on-year. That explained why many steel enterprises achieved large profits during that period. Moreover, the cement industry recorded double-digit growth in 2016, following the boom of the housing market.

The real estate sector is an important component of the national economy as it currently accounted for 11% of Vietnam’s GDP and ranked second in attracting foreign direct investment in 2022 with over US$4.45 billion, accounting for 16% of the total registered capital and increasing by US$1.8 billion year-on-year. Along with great contributions to economic growth, this sector also helps to improve people’s living standards and create a beautiful appearance for the country. Hence, the stable growth of the real estate market is an ideal scenario that people from different industries want to see. In contrast, the slowdown of this market will have negative impacts on the economy.

The property sector has strong impacts on over 40 other important sectors

Slowdown in real estate sector sparks concern

Many real estate businesses have been caught in a tough situation, resulting in the suspension and delays of their investment or construction projects. Apparently, it negatively impacts the economic recovery and directly reduces the State’s budget revenue.

The property sector has strong impacts on over 40 other important sectors. Amid the reduction in the real estate market size, the whole ecosystem will be negatively affected, from construction contractors to manufacturers, material suppliers, and furniture manufacturing units.

At the end of October, VNSTEEL Co., Ltd announced its reduced working hours for employees as the company was forced to suspend its operation due to a plunge in steel demand. Similarly, Vietnam Cement Industry Corporation (Vicem), which accounts for a market share of 33% in the entire cement industry, also finds it difficult to promote sales. The supply-demand imbalance causes lots of challenges in the business, according to the general director of Vicem.

The construction industry is heavily affected by the stagnation of the real estate market

Regarding the current difficult situation in the real estate market, Dr. Le Xuan Nghia, former vice chairman of the National Financial Supervisory Commission, said: “It is extremely hard to achieve economic growth amid the real estate downturn.” The rate of spillover effects of the property sector is around 1.3 – 1.4, which means 1% of real estate growth will generate 1.3 – 1.4% growth of the economy. A huge source of social capital cannot be mobilized during the housing market downturn, which negatively affects the whole economy.

As the main source of loans for real estate projects comes from banks, this market is strongly linked with the banking sector. If the housing sector collapses, the banking system will fall into a terrible crisis due to bad debt. Then it causes a domino effect and the whole economy will be paralyzed.

The global economic recessions of the last 50 years all began with the real estate market crisis and its negative impacts on the financial market. For instance, the severe property downturn in 2011-2013 resulted in economic paralysis nearly a decade ago.

As the Chinese government issued regulations to tighten credit recently, the country’s real estate market witnessed continuous downturns. In July 2022, the crisis escalated when a wave of suspended mortgage payments swept over the housing market. The S&P Global Ratings estimated that China’s banks faced mortgage losses of ¥2.4 trillion, or US$356 billion, about 6.4% of the national outstanding mortgage loan in a worst-case scenario as confidence plunged in the nation’s property market. As a result, the government had to issue a real estate rescue package with over ¥1 trillion, or about US$140.2 billion.

“A stable real estate market will have a positive impact on the country’s socio-economic development. In contrast, a volatile property market with unreasonable prices or long-term slowdown will negatively hinder economic development, causing housing-related problems and other social consequences,” said Prof. Pham Hong Chuong, principal of the National Economics University. Therefore, the property market rescue is not only a matter of survival for this market but also plays an important role in stabilizing the entire economy in the future.

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