Real estate capital still dependent on banks

Under the provisions of the Law on Real Estate Business (amending), the legal capital (the minimum capital to be able to establish a company) in the field of real estate business is no less than 20 billion VND. The own capital when investing in a project must be not less than 20% of the total investment for the project with less than 20 hectares land area; and not less than 15% of the total investment for the project with more than 20 hectares land area. Many people said that this law made it difficult for organizations and individuals in the establishment of real estate companies, especially young people who want to start a real estate business.

Discussing this issue at the online meeting "Vietnam Real Estate Market in 2017: trends and forecasts" held on November 24th, 2016 Assoc. Prof. Dr. Tran Kim Chung said that, first of all, on the business line, the law stipulates that a specific amount of capital is compulsory because real estate business is a conditional business line.

Besides, the real estate business is a business sector requiring high and long-term capital, therefore the commitments of project size are required. Moreover, real estate business is contagious to many other industries, so there need to be the bounds on the legal capital and project size. To ensure the stability of the market, real estate businesses must prove their competence and ability.

"Therefore, for those who start a business, there are many steps to participate, many levels to participate, depending on the capacities and abilities of investors", Assoc. Prof. Dr. Tran Kim Chung stressed.

On the current issues that the real estate market capital flows are primarily from the credit institutions (banks), which can cause some risks in the market, Assoc. Prof. Dr. Tran Kim Chung said there is many funds in the real estate market: bank credit, capital from businesses and from potential investors, funds from foreign direct and indirect investors, funds from the stock market and from derivative financial instruments.

"I think at the present time, the real estate market is still dependent on bank funding, accounting for around 70%. This is the nature of the market because with the absence of derivative financial instruments, the market still depends on banks." Assoc. Prof. Dr. Tran Kim Chung said. This, according to him, will lead to three risks: The first is the interest rate risk, the second is the risk of the credit limit, the third is the risk of the ability of the individual customer.

To create a sustainable capital flow for the market, Assoc. Prof. Dr. Tran Kim Chung said that it is needed to financialize the capital source by "creating investment funds, especially investment trust funds, the second is a re-mortgage system, the third is a mutual savings bank, the fourth is the insurance funds, pension savings funds and other financial tools”.