Real estate firms are sprouting up all over the country to support the demand of a fast developing real estate boom. Some are concerned that too many firms will hurt the market.
Electricity of Vietnam (EVN) has announced the establishment of four subsidiary real estate companies in HCM City, Hanoi, Da Nang and Nha Trang. Many other groups operating in various fields have also jumped on the bandwagon.
Too many real estate firms?
In the last four months of 2007 alone, mass media reported on the establishment of several new real estate firms. The Housing Urban Development (HUD) established HUD Land, Lilama Vietnam, a construction and installation corporation, established Lilama Land, while Viglacera, a glass and construction corporation, established Viglacera Land.
Other groups, which operate in different business fields of the national economy, from garment and textiles, paper to paint, electronics to wood processing, have all jumped into unfamiliar business fields. Viettronic Tan Binh, Thanh Cong Textile and Garment, Savimex Wooden Products, Kinh Do Food, Vien Dong Paper, Dong Nai Paint, Vinacomin (coal exporter) and EVN all have real estate firms of their own.
The exploding real estate market and the attractive margins off real estate investment are behind why so many investors are eyeing Vietnamese property and housing.
The recent establishment of large real estate firms is reminiscent of the burgeoned securities company boom in late 2006 and early 2007.
But there is a difference between setting up securities companies and setting up real estate firms. While the owners of securities firms are banks or financial institutions, which by nature understand the securities business, many owners of real estate firms prove to be unfamiliar with their new stomping ground.
Explaining his decision to set up a real estate firm, Dinh Cong Hung, Chairman and General Director of Thanh Cong Textiles and Garments Company, said: “Real estate is a highly profitable business and developing real estate projects is now an essential part of our business development strategy”.
Mr. Hung disagrees with the opinion that a garment company should not make investments in real estate projects, saying that from now to 2010, 50% of the company’s profit will come from its traditional business, while the other 50% will come from its new fields, such as securities investments, real estate, construction materials, etc.
Prof. Dr Dang Hung Vo, former Deputy Minister of Natural Resources and the Environment, said that people should not be too concerned over the establishment of a series of real estate firms.
“Businesses should explore all profit opportunities,” said Mr. Vo.
Growing children have to wear tight clothes
“Growing children have to wear tight clothes” is how Mr. Vo described the burgeoning plethora of real estate companies, they are players in a new game but still have to operate under old rules.
Mr. Vo says the biggest worry now is not the massive establishment of real estate firms, but the archaic legal framework.
He said that State Management Authorities are now puzzled about managing real estate firms and controlling capital flowing into the market.
Currently, the Ministry of Construction’s Housing Management Department is in charge of housing management, the Ministry of Natural Resources and the Environment only takes responsibility for land management, while the Ministry of Finance organizes tax and local authorities licensing of real estate firms.
Vietnam needs an agency to warn when the market is overly hot and stimulate it when it gets cold. No Ministry is collectively in charge and, resultantly, there is little control and regulation.
According to Mr. Vo, the State should not be too worried about investors establishing real estate firms, but it should focus on controlling the capital going in or out, through taxes
For example, the State should impose low tax rates on the agricultural land and tax high on more popular and lucrative real estate investment activities.
Mr. Vo also says that the State should not control the capital inflow into the real estate market by setting a limit on commercial banks’ lending as it did with securities lenders.
Source: Th?i báo Kinh t? Sài Gòn