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“Must control credit to real estate”

09:16 | 03/06/2022

VCN - Economic and financial expert, Dr. Nguyen Tri Hieu (Photo) gives an interview to Customs Magazine.

MoF offers solutions to prevent loss of tax revenue from real estate transfer MoF offers solutions to prevent loss of tax revenue from real estate transfer
Strongly adjusting credit flow Strongly adjusting credit flow
There should be a reasonable roadmap in controlling capital into real estate There should be a reasonable roadmap in controlling capital into real estate
“Must control credit to real estate”
Dr. Nguyễn Trí Hiếu

In your opinion, is it necessary to control capital flow into real estate at this time? What needs to be done to harmoniously solve the problem of both ensuring a stable and safe market development, and facilitating businesses to access investment capital?

For most real estate businesses, banks, stocks and bonds are still the three most important channels. The banking channel is limiting lending, the stock credit market is currently very wobbly due to the chaos of domestic and global economy. Although the bond market is key solution enabling real estate to solve the problem of capital, it is partly losing confidence from investors

The control of capital flows into real estate is still necessary, but it is not possible to fasten too tightly, which will affect the real estate market. Currently, the main capital flow from bank credit into this market is under control. Capital flows from corporate bonds are blooming, but there are many risks, so it is necessary to control and tighten this capital flow. Regarding credit, the State Bank should not extend credit to such risky areas as real estate, but it is necessary to have a somewhat loosening policy in lending for construction investment, in purchasing social housing, and low-income housing and industrial real estate. However, loosening policy in lending doesn’t mean accepting subprime lending. Overall, it is high time to control real estate, especially amid chaotic situations such as price inflation, which is causing damage to the market and to the whole society. Particularly, corporate bonds must be strictly controlled to limit negative consequences due to loosened policies in the past two years. To some extent, the strict control of capital will affect the real estate market, but enable us to avoid major risks. In contrast, the uncontrolled expand the market can lead to system breakdowns like the case of Evergrande real estate group in China. Capital controls can slow down market development, but this is essential for a stable, sustainable market.

We are aiming to develop Vietnam's capital market, including healthy and sustainable real estate capital. Could you please recommend solutions to control capital in real estate, especially capital from corporate bonds, one of the huge capital mobilization channels for the real estate market?

I think that the Government's policy needs to be stronger in controlling the real estate market, because the problems that are happening and handling are just "the tip of the iceberg". In order to gain confidence from investors, the issuer and distribution organization such as a bank or securities company need to provide complete and accurate information about the issuer's financial situation, the purpose of the issue and the purpose of the issue. bonds, security assets of bonds, characteristics of bonds, rights and obligations of bondholders, commitments to bonds, obligations of issuing enterprises and distribution organizations.

In addition, independent auditing companies in charge of checking and verifying the truthfulness of financial statements must provide accurate information about the financial position of enterprises. If the audit firms do not do it right, incorrect numbers will lead to misappraisal on the part of investors. At that time, investors cannot update the financial situation, debt repayment capacity of the issuer as well as whether the use of capital raised from bonds is suitable for the purpose of bond issuance.

In your opinion, how will the control of capital into real estate affect businesses? How should businesses continue to exploit capital markets?

Real estate businesses need to continue to exploit the stock and bond markets to raise medium and long-term capital, but both of these markets need to be reformed and adjusted under legal regulations. At the same time, market regulators have to enhance their inspection efficiency. In addition, market participants including issuers and investors need to be highly compliant, law evading acts and law violations must be punished, otherwise the Vietnamese market will always remain a nascent, risky, and without progress, unable to integrate with the world's playing field. In addition, the Government must plan to reform the stock market strongly. In particular, it is necessary to introduce mandatory regulations on credit ratings for all types of bond issuance by 2023.

Currently, real estate enterprises are quite struggling in finding capital, but it is said that "difficulty can reveal the wisdom”. Thanks to recent incidents, they will learn how to put the capital under control. In financial markets like the US and other advanced countries with a long history of development, what we learn is that the laws are compatible with each other, and are compiled seriously by every member. In Vietnam, many people always find ways to circumvent the law, the law has both loopholes and overlaps, making the real estate market difficult to operate.

What do you evaluate about the trend of capital flows into the real estate market in the coming time?

In 2009, the indiscriminate and uncontrolled credit supply created a real estate bubble. However, things are totally different thanks to timely policies. Interest rates on real estate loans are also relatively high which can set an example for real estate traders more careful. But if we do not continue to control, the danger of creating bubbles will appear. After the Covid-19 pandemic, the demand for housing is increasing day by day, the deployment of infrastructure, new urban design is accelerating, strong, and urgent. Therefore, if the money flowing into the market is not well controlled, it will create a bubble. In the near future, capital inflows into the real estate market will slow down because regulators will tighten capital flows to ensure there are no bubbles and the phenomenon of "easy money". As a result, investors will make more careful consideration. However, this is not a bad thing for the real estate market because "smart money" always creates good profits and contributes to the stable development of the economy and the prosperity of enterprises themselves.

Thank you Sir!

By Hoai Anh/Thu Phuong