A view of HCM City’s skyline seen from the Thủ Thiêm Peninsula in Thủ Đức city. VNS Photo Bồ Xuân Hiệp

Bồ Xuân Hiệp

HCM CITY — Drastic measures are needed for HCM City to address a series of problems in a bid to speed up recovery, experts say.

The real estate market has faced unprecedented problems with a large inventory and a sharp drop in liquidity since the middle of last year, Dr Nguyễn Văn Đính, deputy chairman of the Việt Nam Real Estate Association said.

Apartment prices in the city plummeted by 40-50 per cent year-on-year in the last quarter of 2022, while sales declined by 30 per cent year-on-year, according to property services company Cushman & Wakefield.

The market has seen a huge imbalance between supply and demand for years, with an oversupply in the high-end segment but a shortage of affordable housing products, according to Đính.

Though real estate accounts for only 3.7 per cent of the city’s GRDP, the sector has organic relationships with many other fields and creates a large number of jobs.

In addition, the slow disbursement of public spending remains a problem, which has caused many key projects in the city to be delayed for years.

The city disbursed only 4 per cent of public investment in the first quarter, out of a total VNĐ55.2 trillion worth of public investment set for the year.

Speaking at a recent meeting, Nguyễn Văn Nên, secretary of the municipal Party Committee, said the city’s economic recovery would face challenges with stagnant property and bond markets, and declining industrial production for the rest of 2023.

It has put in doubt whether the city will achieve its yearly growth target.

The city’s GRDP reached VNĐ360 trillion ($15.4 billion) in the first quarter, up 0.7 per cent year-on-year, according to a report by the city’s Statistics Office.

Its growth was lower than the national average, ranking 56th out of all 63 cities and provinces across the nation, said the report.

Its total retail sales of goods and services increased by only 5 per cent year-on-year in the first quarter, while its exports reached more than $10 billion, a drop of 17 per cent year-by-year, the deepest decline in more than two decades.

Nguyễn Phước Hưng, vice chairman of HCM City Union of Business Associations (HUBA), said there has been a steady decrease in exports in most industries, including garments, agriculture, forestry, fishery and wood processing, and others.

Businesses are facing an unprecedented year in exports, he said.

Garment exports fell 8 per cent, and handicraft and woodwork exports decreased by about 15 per cent, he added.

He attributed the low exports to a lack of export orders from major global markets, low cash flows and an inability to borrow from banks, he added.

Corporate bonds. With billions of dollars of bonds due this year, putting great pressure on issuers, bond defaults could trigger a broader crisis for the economy. VNA/VNS Photo

Stagnant credit growth

Credit growth in HCM City increased by only 0.3 per cent in the first quarter, according to figures from the central bank.

Since last September, deposit interest rates at banks have continuously surged to as much as 12 per cent per year, pushing lending interest rates up to 15-16 per cent a year.

Phạm Quang Anh, director of Dony Garment Company, said it was challenging to access loans for businesses.

While the central bank has consistently called on credit institutions to cut lending rates to support businesses, getting loans disbursed has remained a burden for them, he said.

Many firms, especially SMEs, need funds to tackle cash flow issues or to develop growth strategies, he added.

Several businesses said that they have been rejected by banks even though they have collateral and a good credit score.

Other firms said they were facing difficulties in acquiring new loans, with banks only agreeing to lend the amount that they have repaid on current loans.

Companies with week finance contingency plans or without collateral are finding it even more difficult to get loans.

Many companies have delayed their plans to expand and upgrade their technology because of the cash shortage.

Recent HUBA surveys have found more than 40 per cent of firms in HCM City say they are facing challenges due to the shrinking market, 17.6 per cent due to higher raw material prices, 11.2 per cent due to human resource shortages and 17.6 per cent due to a lack of capital.

Recommendations

Despite its shortcomings, the bond market has room to grow due to high capital demand from businesses, experts said.

They also pointed out, however, that investor confidence would not return unless the Government addresses all the problems they face and safeguard their rights.

Experts recommended the government not let the bond market self-regulate but instead intervene to make it a sustainable channel for capital mobilisation.

Nguyễn Minh Cường, ADB principal country economist for Việt Nam, said Vietnamese financial markets would come under increasing pressure as bond repayments due in 2023 are estimated at $10 billion, of which nearly 43 per cent are from the real estate sector.

He said Việt Nam could learn from other governments to help the bond and real estate markets recover.

For example, the South Korean government has set up a fund to buy back corporate bond worth up to $11 billion, he said.

HUBA recommended the central bank continue rescheduling medium- and long-term loans, and bring down bank loan interest rates to support businesses.

The Government needs to keep the VAT rate at 8 per cent for all sectors, not just a few as at present, until the end of 2024, and ensure tax refunds to businesses in a timely manner, it said.

It needs to roll out policies to promote the development of the bond and real estate markets, and speed up public spending to enable enterprises to maintain operations and create jobs.

Experts also said the central Government should assign greater autonomy to HCM City in order to speed up disbursement of public spending.

They said it was necessary to streamline administrative procedures, especially related to the payment of land use fees, and adjustments of land use rights and licences.

They have called for real estate developers to diversify housing products, especially by increasing affordable housing, and addressing the mismatch between supply and demand.

A stalled construction site in District 1, developed by Tân Hoàng Minh Group. VNS Photo Bồ Xuân Hiệp

Speaking at a recent meeting, PM Chính said the Government would focus on reforms of the bond, real estate and securities markets.

The Government has already set up three committees to carry out reforms of liquidity and currency, the property market and corporate bonds.

Credit will be given to priority sectors such as consumption, investment, exports, industrial property development, and social and worker housing development.

HCM City early this year lowered its growth target for this year to 7.5-8 per cent compared with 9 per cent last year.

Huỳnh Phước Nghĩa, lecturer at the University of Economics of HCM City, said, however, the yearly growth target is likely be too high to reach.

“Amid a world economy fraught with complex fluctuations and instability, we cannot expect the city’s economy to recover in 2023,” he noted.

Experts have warned the situation could be much worse without timely and appropriate intervention from the Government.