Property woes — VietEcon

I talked, in a very small way on August 13, about how the crackdown on corruption was hurting the property market. It turns out that the real estate is riddled with shady transactions. Who knew? Even in the West, real estate is shady, and it often involves government officials.

In Vietnam, the crackdown has meant that companies find it hard to buy land, resulting in a shortage of good land for development. Approvals are slow in coming, leading to less construction. Officials appear nervous about approving land sales and projects, because the government corruption probe might target them.

But also, as we see in another story about Novaland Investment (Ticker: NVL) the government stops handovers for some finished projects. NVL has a development called Madison that is now embroiled in these corruption cases, so the government is prohibiting it from handing over the 187 apartments.

It’s a bit confusing, but here are the details:

[T]he reclamation is linked to a criminal case involving Phan Van Anh Vu, a businessman and ex-official at Vietnam's Public Security Ministry who was detained in January last year and subsequently sentenced to 15 years' jail for abusing his position and power while on duty. He was chairman of Bac Nam 79 Construction, which was granted the right to use the land upon which the Madison project was built by the Ho Chi Minh City People's Committee.

Basically, an ex-official got the land from the HCMC People’s Committee. He then partnered with Novaland to build and market the development on the land. Now the government says that things are not above board.

Most of the current owners in the building (80% according to the article) are holding out for a resolution, while the rest were able to get their money back. This is a black eye for Novaland, but not a new one. It appears to be hurting the stock, which is well down from its high in late October 2018. It’s still worth a bit less than $2bn, so it is still a big player. But not a great look for the company.

It will be interesting to see how other companies deal with issues like these. If the stock market is willing to mostly shrug them off, and the government doesn’t go after the companies too hard, things could start to normalize. We will have to see.