HOW CAN REAL ESTATE ENTERPRISES ACHIEVE SELF-FINANCING?
Meanwhile, financial institutions in Vietnam are not diversified, and bank capitals are controlled, and enterprises are forced to self-finance. The question is how can real estate enterprises achieve self-financing? Dr. Nguyen Viet Cuong, Chairman of Kosy Group has shared interesting opinions about this issue.
Recently, the State Bank has issued a policy of real estate credit control, what do you think about this change?
Real estate is a field of great demand for capital; however, many statistical reports show that there is up to 70% of investment capital in this field coming from bank loans (while the percentage is about 35% in other countries). And the total outstanding real estate loans in the last 2017 was 450,000 billion Vietnam dong, accounting for 6.53% of outstanding loan balance to the economy. This story is exposing the reality of our capital market which still has many limitations, creates capital structure which is inadequate and potentially risky, especially when the government introduces policies to limit the flow of money into real estate as currently.
The promulgation of the official letter No. 563/NHNN-TTGSNH prescribing investment credit limit in real estate, is the tightening of the State Bank, which has created a great challenge but also an opportunity for enterprises to gradually reduce their dependence on banks and seek self-financing, ensuring the stable development of the enterprises and contributing to the more sustainable development of the real estate market.
You mentioned the self-financing of enterprises. So, in your opinion, how can enterprises achieve self-financing?
In my opinion, enterprises should first focus on the group of proactive solutions and self-create their comparative advantages such as building and developing business values, building trust in partners, customers and staffs by prestige and serious, honest attitude. This is the most different competitive strength, helping enterprises improve their prestige and maintain their position. In addition, enterprises can choose the market segment in line with their strategies and strengths. For example, instead of pursuing high-end segments that are overwhelmed by supply and fiercely competing with foreign enterprises, enterprises can seek profits in mid-end segments that meet the real demand and are encouraged and favored by the government.
Enterprises should promote investment research and market survey before deciding to invest in project implementation. They should select nice projects situated in favorable locations, suitable and easy to liquid. Enterprises should also professionalize the sales and create cash flow by methodically planning business and communication strategies with attractive policies stimulating customers aimed at achieving good liquidity, minimizing inventory and recovering capital quickly
In addition to the above factors, enterprises may improve their capital capacity in various ways such as increasing charter capital to increase the scale and potential development in the future. In fact, most real estate enterprises have increased their charter capitals. For example, our group increased to 1,000 billion dong in 2018 and plans to increase to 2,000 billion dong in 2019.
Mobilizing advance capitals from customers is also an important and popular source which is only ranked behind the source from banks for real estate enterprises. However, to attract this source of capital, enterprises need to build trust and prestige with customers, give top priority to the interests of customers, commit on the progress and quality of the projects, and attach great importance to after-sales activities.
Issuing bonds is also a noteworthy capital-mobilizing channel. While the capital market in Vietnam still has many limitations, the overseas capital market is plentiful, vibrant and reasonably priced. This is a good opportunity for Vietnamese qualified enterprises to proactively issue bonds overseas to mobilize investment capitals.
Mobilizing capital on the stock market is also a very important capital flow channel for the economy, especially for real estate enterprises. Currently, the market capitalization is over 70% of GDP, exceeding the target until 2020.
In addition, engaging in cooperation, joint venture, association, or transfer is the solution helping enterprises take advantage of the parties’ strengths, attract more capitals while learning the real estate development experience as well as management experience from the advanced countries, etc.
In fact, in my opinion, to mobilize capital effectively, enterprises must also equip themselves with different advantages in terms of long-term strategic objectives, human resources as well as establishment of separate mechanisms for investors.
In your opinion, how should the state create a liberal policy mechanism to promote enterprises to improve their capital capacity for development?
In my opinion, the state should adjust the deadline for payment of land use fees for projects. According to the Decree No. 45/ND/2014-CP by the Government stipulating the collection of land use fees for projects, enterprises have to pay the whole amount in the first phase of the project. However, in reality, at that time, most of the projects have just started to be implemented without any revenue, while there are many large expenses to compensate for ground clearance, leveling, construction, etc. Therefore, it is proposed that the state authorities amend this regulation. It can be divided into several durations during the implementation period of the projects or the life cycle of the projects, facilitating the self-financing of enterprises
The state should also promulgate mechanisms and policies for development of capital market, perfecting the mechanisms for development of financial market and housing in order to provide stable medium- and long-term capitals for the real estate market. In addition, the state should establish real estate investment trusts to receive investment capitals on the stock market, thereby investing in real estate, etc.
With regard to the regulation on advance capital mobilization from customers, according to the promulgated regulation, the land projects will be eligible to mobilize advance capitals from customers when the investors complete the construction of basic infrastructure. This makes enterprises hesitate when considering capital capacities in difficult market conditions.
Therefore, I suggest that the state authorities do research and consider loosening this regulation, allowing enterprises to mobilize advance capitals of customers sooner, and at the same time set out the regulations and necessary binding conditions to control the operations of enterprises, ensure the use of advance capitals for the right purposes and commitments, and protect the interests of customers.
Thank you for this conversation!
– Thuy An – batdongsan.com.vn –