Real estate credit under strict control

With the issuance of Resolution No.01/NQ-CP, the Vietnamese government has affirmed that it will strictly control credit for potentially risky sectors, especially real estate, beginning this year.

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In Directive No. 04/CT-NHNN issued on August 2, 2018 by the State Bank of Vietnam (SBV) on further implementation of the key tasks and solutions of the banking industry in the second half of 2018, the SBV continued to affirm focus on production and business, and other priority sectors, and strict control of credit as well.

Along with these measures, the SBV continued to reduce the proportion of short-term deposits eligible for use for medium- and long-term loans and increasingly risky real estate loans. According to SBV regulations, in 2018, commercial banks are only allowed to use 45 per cent of short-term deposits for medium- and long-term loans, including for real estate. This ceiling will be reduced to 40 per cent on January 1, 2019.

Financial and real estate experts talked about their assessment of the impact of this credit tightening and how the real estate market will look after January 1, 2019, when the ceiling of 40 per cent is imposed.

Nguyen Tri Hieu, Economist

The real estate lending rate may be much higher than the published number. The SBV’s regulations on credit for real estate business are aimed at real estate loans for profit purposes.

However, many people now buy houses or repair homes with loans from banks, but these loans are now classified as consumer credit and, if the mortgage is included in real estate credit, it will account for about 20 per cent of total outstanding loans.

If real estate credit is not controlled and money is still poured into the sector next year, the real estate market may return to saturation, recession, and oversupply.

Tran Du Lich, Economist

The bad results of bankers pumping investment into the real estate and security markets during 2007-2008 had a great negative impact on the markets, which have not been fully overcome yet.

This is a major lesson for the whole economy in general and the banking system in particular. Therefore, I would say that the credit tightening and limitation of loans from bankers to the real estate and security markets is a must. In the current context, real estate developers need to avoid depending on credit, and bankers must be more careful when giving loans to these sectors.

Moreover, reports on the total outstanding loans on the real estate market were not accurate in many cases, so the official number is much higher than the real figure. That is another reason why we should be more careful with credit for the real estate sector.

Le Hoang Chau, Chairman, Ho Chi Minh City Real Estate Association

Real estate loans now account for 7.5 per cent of total outstanding loans (excluding consumer credit used to trade in real estate). In Ho Chi Minh City, this proportion is 10.8 per cent – higher than the national average. This poses risks for both the credit system and the real estate business. The SBV’s credit limitation roadmap is very positive, as it has forced real estate companies to seek additional sources of capital, from the stock market, bonds issuances, and foreign investment. It is not feasible to seek capital from real estate investment funds, since there is only one real estate investment fund – TCREIT by Techcombank – set up in Vietnam’s market, with chartered capital of only VND50 billion ($2.2 million). This fund, therefore, cannot meet the demand of the market.

Credit growth across the whole country was 18.17 per cent in 2017, roughly half of the 37-per-cent credit growth rate seen in 2007. This figure is expected to be healthier this year at 17 per cent.

Duong Thuy Dung, Senior director, CBRE Vietnam

I see that this credit tightening is a long-term roadmap by the SBV. It has been going on since 2016 and is continuing into 2019. I may say that it is necessary to impose this tightening because we have said that “Prevention is better than a cure”. We have learned many lessons from the past, when the market was in a hot fever and ultimately collapsed. The collapse of the real estate market, moreover, would not only impact itself, it would cause a domino effect on all other sectors and the economy in general.

The reality is that, even though the supply of the market develops too quickly, this is not completely negative. However the sharp increase in supply over the last three years should be controlled and credit tightening is a suitable and necessary measure. When credit from the banks is tightened, developers must restructure their businesses by diversifying capital sources. The avoidance of depending on bank credit will help them be more active, flexible, and healthy in their business. In order to mobilise capital, developers shift from private companies to joint stock ones, since this type of company is the first step to making their business more transparent, which helps them with calling on investors to come on board.

Larger fish will take to IPOs to mobilise capital from international and domestic partners. This type of mobilisation is very positive, because it forces companies to pursue healthier business practices.

As far as I know, many investors have been holding road shows in Hong Kong, Singapore, and Japan to find partners for their projects. Of course, the credit tightening will reduce the added supply in the near future, but I hope it will be considered to impose this restriction only on specific segments of the real estate market, such as the high-end and luxury segments.

Meanwhile, the mid-range segment should be offered favourable conditions such as stimulation packages to be developed, since this is where the real demand of the whole society lies.

Leon Cheneval, Financial expert and director, Evalpro

I’m aware and have been following this decision with great interest. Historically and from lessons in external markets, this type of action by governments is twofold. First is for softening a heated property market and second is for putting investment into production and jobs. Both of these reasons justify such a decision in my opinion. The market in general, confirmed by my continual survey of the market, sees risk ahead. Many experts say the market is solid, so this is confusing. I feel the government is right in trying to pull heat out of the market and I agree with the strategy. Banks have had and still have non-performing loan risks for some time. It appears to me that risk aversion measures are necessary and thus, Resolution No.01/NQ-CP was issued.

It should be said that some sectors are still performing well, such as landed property. Houses and land have always been a staple of a Vietnamese property portfolio and always will be. Developers are still aggressive and the mergers and acquisitions market is active, while the resolution aims to focus on risk areas in lending across the condominium sector. That said, developers are still bullish, but I’m hearing some warnings, and those need to be listened to. 2019 will see more development and more products, particularly many high-end or super-high-end projects. That sector is too hard to call in my opinion, but needs watching. Besides, the affordable segment seems to stabilise and the product quality is improving, although only slightly. This has been driven by smarter buyers gaining better market knowledge and developers taking note. I see little change with foreign buyers ramping up and Vietnam seen as a cheap option. This should fill the void caused by any reactions to the resolution. The effect of the resolution won’t be felt immediately. Market sentiment is strong, as it normally is in Vietnam. Property here is still a savings account and disposable income for new house purchases. Loans are also not the prime source of real estate funding.


Bich Ngoc

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