Explore the cash vaults of real estate businesses

The impact of Covid-19 has imposed many challenges on various industries, including real estate, in which the market that has cooled down since last year. However, the affects are not evenly shared among real estate businesses but highly depend on the financial capacity of each business.

Cash and pay-in-advance buyers
Whenever the market is in trouble, many investors turn to businesses with stable business operations or large amounts of cash.
Statistics of real estate stocks listed on Ho Chi Minh Stock Exchange at the end of 2019 showed that Nam Long Group (NLG) has the largest proportion of cash and cash equivalents in total assets at 18.24%, equivalent to VND 1,967.3 billion. The group has a strategic focus on developing affordable housing, followed by medium size projects, with current projects in Long An, Can Tho, Hai Phong ...

Another business with large amounts of cash is DIC Corporation with VND 819 billion, accounting for 10.03% of its total asset.
Other businesses that have a small percentage of cash in their total assets include TTC Land (SCR), with VND 184 billion, equivalent to 1.69%; Ha Do Group (HDG) with VND 448 billion, equivalent to 3.34%. The ratio at Vinhomes Joint Stock Company (VHM) is 4.12%, at Vincom Retail Joint Stock Company (VRE) is 4.62% and at Phat Dat Real Estate Development Corporation (PDR) is 4.64%.

Cash is vital during tough period. An example is set by China Evergrande, China's third largest construction enterprise, that is running a month-and-a-half campaign with discounts up to 25% on all its 811 projects nationwide until the end of February 2020 and 22% discount in March.
This strategy was proposed in a situation which sales is reduced, cash flow is limited, and debt becomes overdue, pushing the company to find ways to collect money and fulfill their obligations.
Comparing the future revenues from pay-in-advance buyers, HDG has the highest amount with VND 3,005 billion, accounting for 22.43% of its total asset, followed by DIG with 1,749 billion dong, equivalent to 21.42%, VHM with VND 40,701 billion, equivalent to 20.64, KDH with VND 2,683 billion equivalent to 20.4%...
The greater the value of prepaid items proves that the business has been selling well and is waiting to collect money on schedule and to recognize the profit at the point of project handover to investors.   
Enterprises with low ratio of prepaid items, from 0 - 5% of the total capital include CRE, HDC, TDH, HPX, PDR and DXG.

The opposition during challenging period
According to the data of the Ministry of Construction, in 2019, the number of successful real estate transactions was 83,136 transactions, 26.1% less compared to 2018.
There were 6,200 transactions of resort real estate in particular, 20% less than in 2018. Estimated outstanding loans for real estate activities as of the end of the Q3.2019 are VND 486,683 billion. 
If the business falls into a state of prolonged capital deficit during operation, it will continuously have to raise external capital to offset its business activities.
Consequently, business may incur even greater risks as the market going through tough time.
If the main business does not bring any income, selling is struggling and especially the business is unable to raise external capital to offset the shortage of cash flow from operating activities, , businesses can be forced to sell assets to increase capital under the pressure of loan interest. 
The resistance of real estate businesses is very different, depending on the past results. 
For businesses with a large amount of reserved cash, it is sometimes an opportunity when the market is down, to acquire land at cheaper price as the investors must discount land for fast cash.
This is an opportunity for the market to expel weak businesses. 

(Source: tinnhanhchungkhoan)