Vietnam seeks to kick-start property recovery after confidence shaken by crackdowns

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Vietnam’s leadership is under pressure to introduce reforms to reinvigorate the property sector after leverage restrictions designed to limit risks to the economy and an anti-graft crackdown last year hobbled developers and sent bond prices tumbling.

International bonds issued by the country’s largest property developers have plunged to trade at cents on the dollar after the government introduced new reporting requirements, tightened access to credit and made high-profile arrests of property tycoons on charges including bond market fraud.

Vietnam’s property woes mirror those in China, where the sector has been roiled by a liquidity crisis for more than two years after authorities moved to rein in leverage, triggering a series of high-profile developer defaults. Evergrande, the world’s most indebted property developer, filed for bankruptcy protection in the US this month.

In Vietnam, developers expanded aggressively before the coronavirus pandemic, tapping domestic banks and bond markets to fund growth. But crossholdings between developers created contagion risk, while the extent of lenders’ exposure to the sector raised concerns about their ability to absorb losses in the event of a downturn.

In a sign of the economy’s sensitivity to the property sector, the arrest last year of tycoon Truong My Lan, chair of Van Thinh Phat Holdings, sparked a run on Saigon Commercial Bank until the country’s central bank intervened to reassure depositors.

The tumult set off a fire sale of Vietnamese real estate bonds, many of which fell deep into distressed territory. Hundreds of smaller developers and property groups were forced into bankruptcy, and thousands of projects were suspended.

One $300mn bond maturing in 2026 from developer Novaland fell to 32 cents on the dollar, while a $200mn bond maturing the same year from rival property group BIM Land dropped to 52 cents.

Real estate demand has sputtered while consumers delay purchases of new homes over doubts that struggling developers will complete existing projects.

The crisis has ramifications for the country’s economic recovery from the pandemic. While Vietnam was one of Asia’s fastest-growing economies last year, the World Bank cut its gross domestic product growth forecast this month to 4.7 per cent from an 8 per cent expansion last year, citing weak domestic consumption.

Vietnam’s Communist party-run government was expected to consider additional actions to support the property market and shore up economic growth during the 25th session of the National Assembly Standing Committee, the legislature’s top body, this month in Hanoi. As yet, there have been no announcements on measures to support the property market.

“We might see measures that incentivise banks to deal with these issues [in the property market]. We might see a relaxation of rules,” said Xavier Jean, south-east Asia corporate ratings lead at S&P Global.

A draft land law released this year would loosen price controls on land sales and bring them closer to the market rate, but the legislation has been criticised by business groups including the Vietnam National Real Estate Association for failing to revoke a ban on using property as collateral to raise funds from foreign lenders.

Dung Duong, head of professional services at CBRE, a real estate company, noted that the government had undertaken a series of measures to kick-start demand this year. “They’ve cut rates four times in a row. They’ve introduced policies to support issuers. They’ve put aside a huge amount of money for social housing,” she said.

Eddie Middleton, managing director at Alvarez & Marsal, a professional services group specialising in corporate restructuring, voiced doubt about how Vietnam could emerge from its property crisis.

“We just don’t know the pathway to an outcome,” said Middleton. “The market is at the bottom of quite a steep learning curve.”

“Every restructuring moves too slowly, but particularly in Vietnam. There isn’t the history, the experience,” he said. “So there’s a disinclination to use the legislation available, they’d [developers] would rather reach a negotiated solution.”