Searching for Investment Directions

Real estate remains a favourite traditional investment channel regardless of how volatile the economy is

Real estate remains a favourite traditional investment channel regardless of how volatile the economy is

Deposit rates are on the fall; shares are reshaping after a long time of uncertainties; gold investments are risky while real estate slumps. Unemployed cash flows are standing before hard options although all channels are thirsty for cash to revitalise.

Gold, foreign currencies, securities and real estate remain favourite traditional investment channels regardless of how the economy is volatile. Despite overall difficulty, wise investment decisions are bringing in lofty returns.

Gold and land are jittery

In April and May, global investors turned their back on gold. After hitting the high of all times, the precious metal price plunges sharply. The gold cyclone started at the advent of global financial crisis in 2008. The bullion price kept going up to reach US$1,921 an ounce in 2011. As such, many experts and financial institutions predicted that gold would advance to US$3,000 an ounce in 2013. But, this forecast will not come true. Since the beginning of this year, gold, which is widely known as a safe investment haven and high profitability, has dropped significantly. On April 12 and April 15, gold price lost US$225 an ounce in panic selling. Gold is forecast not to exceed US$1,500 threshold and is no longer an attractive channel.

Domestic gold prices lack correlation to world price movements. Terrible declines on global markets also caused big drops in Vietnam but the gap between domestic and global prices has widened to seemingly unrealistic values. The steeping period of gold prices coincided with the time the State Bank of Vietnam (SBV) applied exclusive management power on gold. This agency is the final buyer and seller on the market. To date, about 26 tonnes of gold have been sold by the central bank and totally consumed by the market but the gap remains absurdly wide. Domestic prices are currently VND4-5 million a tael higher than the world rate. In May, the difference peaked at VND7 million per tael. Despite the wide gap, the buying trend remains stronger than the selling trend in the Vietnamese market.

Buying the precious metal with the huge price gap with the world is posed to high risks. Besides, the world gold price is on the downward spiral and investment funds continue to cut bullion holdings. This is a double risk for those spending unemployed money on gold.

Currently, world economies are reviving but a similar outlook for Vietnamese economy is unlikely. Together with economic recovery, the United States housing market is also revitalising. However, the Vietnamese estate market is still sunk in bad debts and inventories. Housing prices have fallen by 30-50 per cent from the peak in 2008 in many places but the purchasing power is extremely weak. The Government has also decided to provide policy supports, reschedule or debts, reduce taxes, launch the stimulus package of VND30 trillion (US$1.44 billion), and lower lending interest rates, the market remains stock-still. It is quite clear that the key to unlock the freezing state of the real estate market is confidence. Once there is a belief that the market is yet at its bottom, the downward trend will continue and buyers will not make purchasing decisions.

If the Government does not have drastic solutions to clear huge bad debts, reduce massive real estate inventories, and carry out homebuyer support policies on a broad scale, the market is unlikely to make positive changes in the short term. Without a clear outlook, unemployed money for the real estate market is compared to throwing money into a bottomless box.

However, the market is always changing very rapidly. Best opportunities may appear and be caught in the worst time of the market. A big, experienced real estate dealer said it is wise to buy a house that can produce money (resell or lease) enough to pay interests for banks, they will win. This sounds perfect because it is unwise to buy a house and let it be vacant.

Real estate is catching the interest of investors and this is a good opportunity for cash-laden investors. Current investments are likely profitable in 2-3 years when the economy recovers.

Shares are risky but potential

US real estate and stock markets have regained what they have lost since 2007 (prior to crisis) and brought in lofty returns for investors. In addition, housing prices in the US are expected to rise 8 per cent this year and 14 per cent till 2015.

In Vietnam, when deposit interest rates decline to 7.5 per cent and are expected fall by 0.5 per cent in the coming time, the stock market is forecast to catch a new inflow of capital. However, after advancing more than 18 per cent in the first quarter, the stock market showed signs of weakening in April. The VN-Index surpassed the 500-point threshold in May and the market became more attractive to investors.

The stock market remains a good place for short-term investors to take quick margins. When the market is showing signs of upward movement, a large amount of cash will be immediately disbursed on equity assets. Many long-term investors prefer stocks with high dividend history. In the face of economic slowdown, many companies are paying very high dividend payout ratios. PetroVietnam General Services Joint Stock Corporation (PET) maintains the dividend payout ratio at 15-18 per cent a year. Japan Vietnam Medical Instrument Joint Stock Company (JVC) pays 18-25 per cent dividend annually.

Ha Giang Mineral and Mechanics Joint Stock Company (HGM) announced to pay 120 percent dividend (VND12,000 per share) for the fiscal year 2012. This is the highest annual dividend payment rate on Vietnamese listed stock exchanges. Many other companies also have very high dividend payout ratios. Doan Xa Port Joint Stock Company (DXP) will pay a 70 per cent dividend (VND7,000 per share) instead of 30 per cent (VND3,000 per share) as planned. Dam Sen Water Park Corporation (DSN) also decided to raise the dividend payout for 2012 from 30 per cent to 60 per cent.

Besides, some companies also generously pay dividends in stock at very high distribution ratios but investors do not prefer receiving more shares in this lacklustre market.

According to analysts, high dividends are very attractive but they lack momentums for price gains. In principle, when investors receive bonus shares, individual share values will decline proportionally. Therefore, they do not actually get any value.

Risks are seen everywhere. Deposits will be a safe haven in the short term although interest rates are as low as 5-7 per cent. Possibly, money will flow into the economy when a new cycle starts.

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