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Landlords convert office buildings into flats

Update: March, 05/2012 - 10:48

by Thuy Anh

Local government authorities as well as building-project owners are making every effort to give the property market a push, at a time when the future growth of the market cannot be foreseen. It is still an open question whether the market has fallen to its lowest point.

To improve the market, HCM City People's Committee recently approved in principle a proposal to turn several office and hotel development projects into apartments.

According to Ho Quang Toan, deputy head of the city's Department of Planning and Architecture, the proposal would address the problems facing property owners, thus contributing to the city's economic development.

However, final decisions about these changes would be based on both general and detailed planning for each area.

"These changes are based on the principle that there would be no changes to planning. However, planning should have some flexibility to suit reality," said Toan.

He added that there would be clearer criteria to implement their projects as detailed planning for the city's downtown area is about to be approved.

If office buildings are changed into apartments, social infrastructure including schools and hospitals will be taken into consideration.

Experts, however, are viewing this issue from different angles.

Dr Nguyen Minh Hoa, head of the Urbanology and Urban Management Faculty at the HCM City University of Social Cultures and Humanities, said it could in the short term help investors recollect money to pay debts or invest in the development of other projects. It could also help increase the city's budget and stimulate the property market.

But the crisis will eventually end at some time, and demand for office space will resume.

Once the projects are put into use, there is no guarantee that the population will be balanced in the city's core area (930ha), which is a requirement made by the city authorities. Harmonious scenery, no overloading of social services and no traffic jams are other city criteria for the downtown HCM City.

People capable of buying new apartments in the city's centre are usually wealthy, many of them have cars, which would worsen the traffic problem, according to Hoa.

Asian hubs with high population density, like Tokyo and Singapore, tried to solve traffic problems prior to an increase in population. But major solutions, including a metrorail and overhead road systems, still are a long way from being realised.

HCM City is facing a similar situation that occurred in Bangkok in 1997, but the Thai government bought the buildings of the owners who were facing difficulties. And, five years later, when the economy improved, the government began to earn profits from property value, and more important, social value, according to Hoa.

Banks attract gold deposits

A number of commercial banks continue to attract gold deposits, offering terms of up to 12 months, despite a requirement from the State Bank of Viet Nam that they must cease doing so by early May.

They have even increased the interest rate from the usual 2 per cent to 3 per cent or more per year.

Eximbank Viet Nam recently launched a special programme with terms ranging from one to three months for individual depositors of a minimum of 10 taels.

The bank's normal programme has been extended up to 12 months. The highest annual interest rate is 2.2 per cent for a three-month term, and the lowest a 12-month one.

ACB has terms as long as 10 months, and DongA Bank has one for a minimum of three months, with a top rate of 3 per cent.

According to a local newspaper, several other banks, including Sai Gon Commercial Bank, offer a 3.5 per cent rate for three – to 12-month terms, while Nam A Bank has applied a 4 per cent interest rate.

Explaining the situation, a banker said the State Bank planned to mobilise gold from people who are keeping it at home, estimated at between 300 to 500 tonnes. Therefore, banks had to move in advance with a higher interest rate to make the deposits attractive.

Dr Le Tham Duong, head of the business administration faculty of the Banking University of HCM City, said banks allowed to mobilise gold to change it into Vietnamese dong would enjoy a large interest-rate gap. Banks facing liquidity difficulty want to mobilise gold to use the gold value as mortgages in order to get loans in the interbank market.

The increased interest rate on gold deposits may prompt people to buy gold and put gold rather than dong in deposits, which may have a negative impact on the State Bank's efforts to gradually lower the interest rate in dong to 10 per cent this year, from the current 14 per cent.

Open-end funds roll out

Late last year, the Ministry of Finance issued Circular 183, effective from early March, to guide the establishment and management of open funds.

This would ensure that investors minimise risks as they withdraw their capital at a value close to their fund's net-asset value (NAV). (The fund management company would have to buy back the units at the price of the NAV minus the buying-back fee. The latter cannot exceed 3 per cent of the total deal value.)

According to Hiramoto Hiroshi, general manager for Japan Securities Inc, the State Securities Commission should give priority to training courses about the open funds and investment techniques available to investors.

The commission should also show investors that open funds are an important investment trend for the near future, he said. They should learn about the influence the funds will have on the stock market, according to Dau Tu Chung Khoan (Securities Investment).

Preferential tax policy should be issued to attract investors to this kind of fund, he recommended.

There is still no guidance on taxation and accounting systems for the open-fund model.

The circular, though, does offer regulations for close-ended funds that change into open ones, but close-ended funds that are due to expire in two years or less will not be interested in the changing.

With such a short time remaining, the procedure for changing status will leave the fund almost no time for new plans.

The Japan Securities Inc official, however, is optimistic, saying that Japanese investors are eager to contribute to the establishment of open funds in Viet Nam.

"They have a special interest in investment opportunities in real estate and bond investment open funds," he said, adding that priority would be given to the setting up of the two funds as soon as possible. His company has begun to work with the Military Bank Fund Management Company on such operations. — VNS

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