Article by Mr. Dinh Hong Ky, published in Nhip Cau Dau Tu Newspaper on January 3, 2013. Exchanging via Facebook with a friend who is the Chairman of the Board of Directors of a large State-owned transport company that has been equitized about the State’s rescue solutions to rescue real estate, at the end of the paragraph my friend said: “Save who and save for what!”. I kept thinking about my friend’s words…
Exchanging via Facebook with a friend who is the Chairman of the Board of Directors of a large State-owned transport company that has been equitized about the State’s rescue solutions to rescue real estate, at the end of the paragraph my friend said: “Save who and save for what!”. I kept thinking about my friend’s words…
Save who?
Recently, a series of solutions have been proposed by the Government to rescue the economy from the crisis. Most of these solutions are aimed at rescuing real estate – one of the main factors causing the economic downturn of the whole country. So let’s see who is being rescued by rescuing real estate in the current context.
It is easy to see that the first thing to do is to save the project investors, and a large number of these owners belong to different interest groups. This interest group is a chain from individuals in public agencies to project owners and banks – capital sponsors. Then there are secondary investors – or more accurately, speculators. It is the speculators who jump into the market to buy and sell, pushing prices up and causing a distorted and unhealthy market.
Reality shows that the unsold houses today are all high-end ones! But the people who can save the real estate market today are those who have a real need to buy a house to live in. But alas, there are countless of these people, but the number of people who can afford to buy a house is extremely small. With the average income of young couples today, saving up for 70-80 years is not necessarily enough to buy a house. The government has reduced interest rates for home loans, but the problem is where to get the savings to pay the principal to the bank, let alone talk about low or high interest rates?!!!
What is the point of saving?
The question is, is it worth saving these subjects? Is it worth saving the multi-industry and multi-professional investors, many of whom have invested wrongly in a field without really understanding it? Should we save the bank owners when they blindly lend money and now have a pile of bad debt? And should we even save the speculators who are not a small cause of the current market disaster? There are many warnings that this bailout solution is an opportunity for interest groups to profit. In fact, this story happened in the interest rate subsidy in 2009.
While everyone sees the short-term solution to save the real estate market is to lower prices further. Only then will supply meet demand and buyers will have confidence to return to the market. Interest rate support only helps most investors maintain their short-term debt repayment status, and then the market will return to its old state and even worse. While the right move for project owners and investors is to cut losses, accept failure and leave the market to make room for other investors or real buyers.
Moreover, the danger is that these support packages will directly help keep real estate prices high, continuing to distort the market without returning to its true state. And it is worth thinking about whether it is necessary to use a huge amount of budget – people’s tax money – to rescue the above subjects or who needs to be rescued now.
Who needs to be rescued?
Manufacturing and service enterprises that create added value for society and the economy are the priority subjects for rescue, but it seems that they are not given due attention. Orders are decreasing, inventories are piling up, costs are increasing continuously, etc. The Government’s solution is to reduce corporate income tax and then extend the tax payment period. This can be commented on through the lament of a cement manufacturing enterprise: “Suffering! But I’m about to go bankrupt, how can I get the profits of the past few years and need to reduce corporate income tax!”
In addition, in the context of economic difficulties, the most sensitive and difficult class today is the workers. Money is increasingly losing value, wages are decreasing in value, prices are becoming more expensive, unemployment is increasing as more and more businesses go bankrupt.
Yet manufacturing enterprises and their workers entered 2013 with two blows from heaven: increased electricity prices and the application of road maintenance fees. The electricity industry made a big profit this year for the first time, so why rush to increase it again? Road maintenance fees have not been collected for many years, so why choose to collect them at the most difficult time? Granted, this increase and collection is correct, but is it the right time? People who are already in trouble are now in even more trouble, and businesses that are already losing money are now losing even more.
Not to mention the application of the minimum wage to a new level, which in fact does not increase wages but only increases the State’s revenue from businesses and employees through social insurance. Then the increase in the starting point for personal income tax to 9 million VND will not be applied until July! I think the Government can completely deduct a part of the current rescue money to delay the application of the above policies to reduce pressure on businesses and employees.
On a macro level, now is not the time for the Government to introduce stimulus measures, debt cancellation, debt extension, tax reduction or cheap credit, but it is necessary to accept a market rule that ineffective businesses must be eliminated. The solution that people and businesses are currently expecting from the Government is a comprehensive solution, especially focusing on economic restructuring, fighting corruption, group interests and gradually improving the economy. Only a healthy body can develop, not waiting for a few instant painkillers!
Sai Gon, 08/01/2013
Dinh Hong Ky
