Vingroup Resists Price Cuts Amid Property Slump: Southeast Asia

Vingroup JSC, Vietnam’s largest listed developer, will not follow competitors who may lower prices by as much as half this year to sell homes amid an oversupply, slowing economic growth and crimped bank lending.

The company’s pockets are deep enough to avoid discounts, Chief Executive Officer Le Thi Thu Thuy said. The developer stopped selling homes at two Hanoi projects after initial sales and expects prices to rise when they are put back into the market for immediate occupancy, she said.

“The value will still be there and we don’t want to sell cheaply,” she said in an interview at the company’s Vincom Village township in a northern Hanoi suburb on Jan. 21. “And we want our buyers and investors to know we won’t trade down.”

The Hanoi-based developer is counting on a recovery in a city where the number of apartments sold last year more than halved compared with 2011, according to CBRE Group Inc. Developers may have to cut prices by as much as 50 percent of their original values this year, the property broker predicts.

Vietnam’s economy grew at its slowest pace in 13 years in 2012, as rising bad debt in the banking system trimmed lending and curbed domestic demand. Retail sales growth slowed to 16 percent year-on-year in December, the smallest expansion since at least 2005, according to General Statistics Office data.

“They are powering through this down market that we’ve been in for three years,” said David Lyons, managing director at Jones Lang LaSalle’s Vietnam unit. “They seem to plan their development, put in the infrastructure, put in what people need and then go and market it aggressively.”

Hit Bottom

The Hanoi-based company has pre-sold about 2,600 of 4,500 apartments at its Royal City mixed-use development in the capital at an average of about $2,200 per square meter (10.76 square feet), Thuy said, and will start handing the units to buyers after the Lunar New Year holiday next month.

About 3,500 units of 13,000 apartments at Times City, also in Hanoi, have been pre-sold at an average of about $1,450 per square meter. The company stopped selling units at both Hanoi developments about a year ago.

“The residential market has already hit the bottom and we think it can only go up from here,” said Thuy, a former Lehman Brothers banker. “Whether it goes up fast or slow depends on a lot of external factors. It’s not about people not having money, it’s about the confidence.”

Economic Challenges

Vietnam will try to address economic challenges in 2013 as inflation risks persist, bad loans weigh on banks and rising inventories hurt businesses, Prime Minister Nguyen Tan Dung said in a New Year’s Day message. The country must accept “low” economic growth while it restructures its economy and should aim for annual expansion of at least 5 percent, President Truong Tan Sang said in an interview with Vietnam News Agency on Jan. 21.

“Vingroup is adamant about not reducing prices because they feel that essentially what will happen is that when the projects are closer to completion, they can sell at much better prices,” said Kah Ling Chan, a credit analyst at Standard & Poor’s, which rates Vingroup at B, five levels below investment grade. “That remains to be seen. We are a little worried about the broader market, and that is why we will continue to monitor their sales this year.”

The company abandoned a plan to sell as much as $300 million of five-year bonds last month, due to higher-than-expected yields.

Deep Pockets

“They have very deep pockets, but they’re not endless,” said Fiachra MacCana, managing director of Ho Chi Minh City Securities Corp. “At the end of the day, like most companies in Vietnam, their ultimate fate is out of their own hands. A lot of it depends on whether the real estate market comes back in 2013 or we see another year of declines.”

Vingroup’s shares have climbed 7.7 percent since the start of the year, compared with the 7 percent gain in the VN Index. In 2012, the stock added 2.5 percent, underperforming the benchmark gauge’s 18 percent advance. Vingroup rose 0.8 percent in Ho Chi Minh City.

Vingroup isn’t relying on the residential market. Its Royal City and Times City “mega malls,” connected to the residential buildings, will add 380,000 square meters of retail space in Hanoi this year, more than doubling the current total supply, according to data from CBRE. The brokerage forecasts rents in the capital to fall this year.

Thuy said she remains upbeat about the retail market, where rents have been rising with demand for shop space. The company’s first mall, Hanoi’s Vincom Center, is fully leased with a waiting list for new tenants, while the average vacancy rate at its shopping centers in Ho Chi Minh City, including its new Vincom Center, is 4 percent to 5 percent, she said. A number of contracts were signed with ascending rents, she added.

Strategic Investors

Vingroup is in talks with strategic investors to buy a stake of as much as 10 percent, Thuy said. It’s also pushing ahead with a planned listing in Singapore for later this year.

The developer has access to funding from other sources to support ongoing construction, she said, including assets that can be monetized, and “quite significant” recurring revenue. Cash reserves have fluctuated between $220 million and $350 million since the end of September, she added.

“We don’t have to cut our prices to get funding,” she said. “We have other business, other sources as well. We’re bullish about the market.”

— With assistance by Nicholas Heath

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