He was speaking at a seminar held Monday (28 Sep 2009) in HCM City where officials and experts discussed capital raising for the domestic real estate sector.

 

Phan Huu Thang, head of the Foreign Investment Agency at the Ministry of Planning and Investment, said a large amount of foreign investment had been committed to the development of housing and infrastructure in the country. However, as the foreign inflows into Vietnam were hit by the global recession, the local property sector "will be thirsty for capital," Thang said. He said right now the market should be driven by local developers that "can finance themselves rather than depend on capital sources from outside the country."

 

Le Chi Hieu, chair of HCM City-based Thu Duc House real estate company, said it is hard for local developers to attract real estate investments even though the sector is considered a highly profitable one.

 

Most developers in Vietnam can only fund 20-30 percent of their projects and Hieu said the task of seeking other funding sources has become much more challenging amid the economic slowdown.

 

Hieu said that although there were different ways for developers to fund their projects in theory, only a few sources of financing were currently available in Vietnam while others, including bonds and investment trusts, needed a complete legal framework to become legitimate.

 

Thu Duc House real estate company itself could meet half of its capital demands and it needed to raise more money from customers, commercial banks and partners, he said. "Unfortunately these capital sources are only short-term funding, instead of the long-term funding that is crucial to the real estate industry." "We have considered raising capital through bonds... but it is impossible to do so now," Hieu said.

 

Tran Duy Canh, managing partner of local law firm Luat Viet, said bonds only account for 5-7 percent of all capital sources for real estate as there have been arguments about the legality of issuing bonds before projects start. In Vietnam, property companies must have the basic infrastructure for their projects built first before they can ask for advances from customers.

 

But Canh said the government allowed businesses in the real estate industry to issue bonds and some properties developers had in fact succeeded in raising capital through bonds. For example, Sacomreal, an arm of Saigon Thuong Tin Commercial Bank, issued 850 billion dong ($47.22 million) worth of bonds last year.

 

However, Canh warned that developers would be fined if they required bondholders to purchase their products. "They are only allowed to offer bondholders the right to purchase their products as an additional privilege, not a compulsory deal." Still, not all experts believe that issuing bonds is the right move.

 

An official of a local property firm said investors are not interested in bonds these days as bond yields are not as attractive as interest rates offered by commercial banks. Even the government has failed to find buyers for its bonds, he said.

 

"Bonds are discussed by many as a solution, but history shows that globally, and in Vietnam, they are a niche product and not that widely available, especially for small companies," said Ken Atkinson, managing partner of Grant Thornton Vietnam. He suggested that, with land prices remaining high, developers should work with land owners instead of financing the land acquisition up front.