A recent survey conducted by the Board for Private Sector Development Research (Board IV) has unveiled concerning statistics regarding the real estate sector. In the first quarter of 2023, real estate enterprises grappled with an astonishing average inventory duration of 5,662 days, with one company facing a staggering 54,334-day inventory period.

This alarming trend has sparked apprehension among industry experts, with Board IV expressing worry that, at the current sales pace, certain enterprises may require over 15 years to clear their inventory. Moreover, an in-depth analysis by Board IV scrutinized the financial reports of 1,579 listed companies across three Vietnamese stock exchanges from 2018 to June 2023, revealing a significant decline in revenue since mid-2022, particularly within the real estate and construction sectors. These findings also highlighted the vulnerability of Vietnamese enterprises due to their slim equity profiles and heavy reliance on borrowed capital. Shrinking orders, difficulties in raising funds via bonds and stocks, and limited access to bank loans have posed immediate cash flow management challenges. Companies burdened with high debt-to-equity ratios are especially struggling in the current economic climate, with the construction, real estate, and building materials sectors being particularly affected. Construction firms are grappling with a debt-to-equity ratio of 1.14 times, while real estate and building materials companies face a ratio of 0.62 time. This predicament arises from a substantial disparity between interest expenses and post-tax profits. In 2022, the construction sector boasted the highest interest coverage ratio at a staggering 375%, followed by the consumer goods and services sector at 44.8% and the real estate sector at 40.2%. Despite bearing the brunt of primary business risks, these companies are reaping limited rewards, leaving little room for accumulation and reinvestment. Cash flow concerns loom large for the construction and real estate sectors. The average days receivable for construction firms soared from 463 days in the first quarter of 2022 to 1,165 days in the same period of 2023. Similarly, the average inventory duration for the first quarter of 2023 surged to 4,527 days from 661 days in the same period in 2022, placing immense pressure on the cash flow of these enterprises. The real estate sector faces analogous challenges, with an average inventory duration of 5,662 days (or 15.5 years) in January-March 2023. Most alarmingly, one company reported an astonishing 54,334-day inventory duration. Given the existing sales landscape, this specific company might require 149 years to sell its entire inventory, according to Board IV. The Ministry of Construction reported a real estate inventory of 16,940 units at the end of the third quarter of 2023, comprising 3,196 apartments, 6,554 detached houses, and 7,190 land parcels. Notably, detached houses and land parcels constitute the majority of the inventory, reflecting the primary focus of real estate projects in the market. In the realm of monetary policy, deposit and lending rates have undergone reductions due to four rounds of interest rate cuts, yet they remain relatively high, as per Board IV’s observations. The central bank is urged to further lower lending rates to genuinely support businesses. To foster economic recovery, Board IV recommends that commercial banks shift their focus from evaluating collateral assets to assessing the future debt repayment capabilities of enterprises. They should also offer reduced interest rates to small and medium-sized enterprises to enhance credit accessibility. However, high-risk industries may need to accept higher interest rates. For the real estate sector, banks should prioritize lending to businesses providing essential needs like technical infrastructure, social infrastructure, industrial zones, and offices. Furthermore, they should facilitate debt restructuring and rescheduling for these entities while maintaining their debt classification in accordance with the central bank’s Circular 02. In alignment with this perspective, Le Xuan Nghia, a member of the National Financial Supervisory Commission, emphasized at a recent real estate seminar that mid-term lending rates should range from 7% to 8% per annum. Additionally, loan assessments should prioritize debt repayment ability over collateral to improve access to funding sources for businesses.