Tightening real estate credit: Banks and businesses are beneficial

Credit for real estate needs to be tightly controlled. Source: Internet.

Strict control of real estate credit

Beginning in 2018, with the issuance of Resolution 01/NQ-CP, the Government has affirmed that it will strictly control credit for potential risk areas, especially the real estate market. Specifically, the Government requires the close monitoring of developments by regularly updating information on this market’s situation.

Subsequently, the State Bank has sent a letter requesting credit institutions and branches of foreign banks to shift their credit structure in favor of concentrating capital for production and business, credit for real estate, construction, capital balance, use of capital to medium and long-term loans, ensuring liquidity. At the same time, banks are required to regularly review, assess and track the progress of real estate projects, financial capacity of customers, credits and secured assets to take appropriate measures...

Recently, the State Bank Governor Le Minh Hung, issued Directive No. 04/CT-NHNN on further implementation of the key tasks and solutions of the banking industry in the last 6 months of 2018. The SBV confirmed that credit growth should not be considered and adjusted, while continuing to affirm credit concentration in the areas of production and business, priority areas and strict control. Credit risk in real estate, securities, BOT, traffic ticket... Strict control of consumer credit, especially consumer credit related to real estate, as well as strict control of loan purpose and use.

Together with the above measures, the SBV continued to reduce the proportion of short-term deposits used for medium and long-term loans, and the increased risks of real estate loans.

According to statistics from the State Bank, total outstanding loans for investment and real estate business of Vietnam to 31 December, 2017, is about 471,000 billion VND, accounting for about 7.2% of total outstanding loans of the economy. In the first half of the year, real estate lending accounted for about 7.5% of total outstanding loans. According to the statistics of the Ho Chi Minh City Securities Corporation (HSC), as of June 20, 2018, credit for consumer loans, real estate ... up 6.35% over the beginning of 2018, down sharply from 7.54% in the same period of 2017. In HCM City, real estate loans accounted for 10.8% of total outstanding loans of the economy with about 208 trillion VND.

Commenting on this issue, economist Nguyen Tri Hieu said that the real estate lending rate may be much higher than the number published. Accordingly, the State Bank's regulations on credit real estate business are real estate loans for profit purposes. However, many people now buy houses, repair homes with loans from banks, but these loans are now classified as consumer credit and if the mortgage is included in the credit real estate, the credit Real estate will account for about 20% of total outstanding loans. According to this expert, if the year does not control real estate credit, the real estate market may return to saturation, recession, over supply when money is still poured into real estate in the next year.

Create pressure for real estate enterprises to be more professional

For real estate companies, the credit for real estate will have a certain impact, because real estate business needs medium-term and long-term capital. In other countries, investment funds and the stock market are the main sources of capital for the real estate market, while in Vietnam, real estate firms rely heavily on banking credit. Many argue that the credit squeeze will lead to some difficulties in the market, especially for small investors with lack of capacity. However, in the long term, strict control of credit capital for real estate will help the market develop healthier and more sustainably; real estate will be more professional and more active.

Commenting on this issue, Mr. Le Hoang Chau, Chairman of the Association of Real Estate HCMC, in HCM City, the proportion of real estate credit accounted for 10.8%, higher than the national average. This implies risks for both the credit system and real estate companies. Therefore, according to Mr. Chau, the roadmap to limit real estate credit by the State Bank is very positive that has forced the real estate companies to seek additional sources of capital, first of all from the security market, corporate bonds, foreign direct investment (FDI). However, it is not feasible to seek funds from real estate investment funds, as the country has only one real estate investment fund which is TCREIT of Techcombank, with a small chartered capital of only 50 billion VND. Therefore, it has not mobilized much idle capital in the country and has not met the huge capital demand of the real estate market.

Many comments also said that tightening real estate credit is necessary to reduce the risk for all market participants. With the banking system, the restriction of real estate credit will help to limit the bad debt incurred throughout the system, because the real estate market is more risky, vulnerable to the negative changes of the economy. In addition, in the context that the government aims to stabilize the macro economy, the control of credit for real estate will also help control inflation. The tightening credit for real estate will be the driving force for real estate companies to improve their professionalism in understanding market demand, identifying investment segments and seeking resources from other sources besides credit.

"Enterprises are facing the challenge of the State Bank to implement the roadmap to limit credit in the real estate market, but this is also an opportunity to restructure the enterprises, restructure business investment capital, reduce the dependence on credit loans for the development of enterprises to become increasingly stronger,” said Mr. Le Hoang Chau. Accordingly, in order to adapt to the process of reducing credit for real estate, Mr. Le Hoang Chau said that real estate businesses should ensure business efficiency including profit targets, revenue, prepared land fund, project quality, project implementation progress, transparency in corporate governance, etc., to meet the conditions for accessing bank loans under the new policy, as well as to prepare for credit restrictions on real estate expected from January 1, 2019, according to the schedule of Circular 19/2017/TT-NHNN.

In addition, the experts also said that enterprises should also consider converting into joint stock companies to have conditions to call social capital and orientation to become public companies to qualify for listing on the Stock trading floor. At the same time, it is necessary to select partners who are reputable companies and financial investment funds to co-operate in investment, business and project development in order to increase resources, learn from experiences and enhance the management capacity of enterprises.