Real estate businesses in a spiral of cash shortage and capital shortage

Narrow access to capital for businesses, banks face difficulties

In a recent discussion, Mr. Le Hong Khang, Director of Analysis and Credit Ratings at FiinRatings, commented that in the first half of last year, the business situation of real estate enterprises was still basically low compared to the average of the past 5 years. Business has improved, but not significantly.

This rating unit said the above assessments are based on data related to debt, profitability, and profit quality of real estate businesses at only average levels.

Except for a few large-scale enterprises with clean land funds and clear legal status that can record positive business results this year, most medium-sized real estate enterprises are in a waiting position. In addition, many real estate enterprises are currently facing and dealing with two very big problems. The first problem is that access to capital is much more difficult than in the previous period.

Mr. Khang commented that in the past, real estate businesses could access diverse and flexible capital sources. They could mobilize capital from investment cooperation contracts, home buyers, bonds, bank loans, etc. However, up to now, these channels have encountered many difficulties, including the bank loan channel.

Meanwhile, commercial banks have also been under great pressure to support businesses in the recent period in accordance with the spirit of Circular 02 and Decree 08, restructuring debt for customers. Therefore, when investing in real estate projects, commercial banks must also raise investment standards and carefully screen projects.

He added that projects with full legal investors but not in the segment that banks focus on investing in are also very difficult to borrow capital.

The narrowing of the access to capital from borrowing for real estate businesses is also reflected in the cash flow data of businesses. Cash flow from borrowing activities of most businesses decreased sharply in 2023, when the bond market was gloomy and banks tightened lending. For example, this cash flow of Novaland decreased from VND 30,150 billion to VND 4,876 billion, Dat Xanh decreased from VND 7,351 billion to VND 3,300 billion.

In the second quarter, the revenue from borrowing of these enterprises has not improved. Novaland's revenue from borrowing in the last quarter was equivalent to 19% of 2023, Dat Xanh's was 27%, DIC Corp's was 16%.

The issue of difficult access to capital for real estate businesses was also mentioned by Mr. Nguyen Quoc Hung, Vice Chairman and General Secretary of the Vietnam Banking Association.

Mr. Hung said that bank loans for real estate are not small. Total outstanding loans for real estate and real estate business accounted for nearly 22% of the total outstanding loans of the economy as of August 1. Outstanding loans for direct real estate business were about 1.2 million billion VND and loans for consumers were 1.8 million billion VND.

Assessing the legal problems that real estate businesses are reporting, Mr. Hung raised the question of whether it is due to the mechanism or because businesses are applying the mechanism and cannot fix it. He said that many projects have legal problems that cannot be resolved because they are not in accordance with legal regulations.

Meanwhile, the banking industry is facing challenges from pending projects and legal problems. With projects that have not completed procedures, banks are facing the problem of stagnant money in these projects making it difficult to turn around capital. "The banking industry is facing that challenge, not that the banking industry is not creating favorable conditions for production and business units, including real estate. This is really a matter of concern," Mr. Hung emphasized.

He raised the question that there are currently no statistics on how many unfinished real estates are "hoarding" people's and banks' money, and how many of these projects can be completed.

Doanh nghiệp bất động sản trong vòng xoáy kẹt tiền, đói vốn - 1 — Mr. Nguyen Quoc Hung, Vice Chairman and General Secretary of Vietnam Banks Association (Photo: Dan Viet).

Mr. Nguyen Quoc Hung said the banking industry also recommended that all levels of the industry quickly complete guidance procedures and remove obstacles so that stuck projects can soon be put into consumption.

He said that if the banking industry is not careful, the legal consequences will be huge. Previously, even businesses without money could do real estate business and then fall into difficult situations and need to be rescued. The 3 real estate laws that are in effect will solve this problem and bring opportunities to capable real estate businesses.

Mr. Hung said that banks are willing to invest in businesses that have real capital and capacity. In particular, banks are willing to lend to real estate businesses that develop social housing. As for real estate businesses, Mr. Hung said that they should restructure themselves and re-evaluate their resources.

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As access to capital from banks or corporate bonds becomes more difficult than before, real estate businesses are forced to consider other options. Other capital mobilization channels for these businesses include issuing shares, selling projects, and borrowing USD.

Many investors have had their capital mobilization plans approved through share issuance at the 2023 annual shareholders' meeting. For example, Novaland issued VND2,000 billion in private issuance and VND11,700 billion in purchase rights to existing shareholders. Dat Xanh Group issued VND1,700 billion in private issuance and VND1,800 billion in purchase rights to existing shareholders.

Khang Dien House issued VND3,000 billion to professional investors. Phat Dat finalized the shareholder list to issue VND1,300 billion in stock purchase rights last May. DIC Corp plans to issue purchase rights with a total value of VND3,000 billion.

Another option that real estate companies, although reluctant, still implement to get capital is to sell projects. Some deals to sell projects to foreign investors include Tam Luc Real Estate Joint Stock Company selling a 3.68ha project in Thu Duc City to Gamuda Land for 315.8 million USD.

Thuan Thanh Joint Stock Company sold 2,060 square meters of land worth 14.3 million USD to Sky World Development Berhad in District 8, Ho Chi Minh City. Becamex IDC sold the 18.9-hectare Tan Thanh urban area project to Capitaland. Or Nam Long announced a plan to raise about 6,000 billion VND in the next 3 years through the sale of project capital and non-core assets at the 2024 annual general meeting of shareholders.

If the project is not sold, the enterprise chooses to establish a strategic relationship to implement projects such as HTN cooperating with Marubeni to implement the new administrative center project in Thu Duc City.

Figures in financial statements also show this when cash flow from selling investments in other businesses of large real estate enterprises has also increased sharply from 2022 to present.