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Experts call for loosening of real estate credit   2008-08-01 - VNN

Commercial banks have asked for reconsideration of policies on real estate credit in order to prevent a commodity shortage in the long term and avoid the risk of the domestic market being swallowed by foreign investors.


Raising supply to real estate market


Deputy Prime Minister has asked ministries and branches to speed up real estate projects in order to supply more commodities to the market, especially very important commodities like urban accommodations, offices and service works. Meanwhile, some commercial banks have proposed the reconsideration of the real estate loaning policy in order to prevent a commodity shortage and the risk of the domestic market being swallowed by foreign investors.


In the period of hot credit development, banks all rushed to give loans to fund real estate projects, though they were warned about the high risks of the loans. When the real estate market became quiet, banks hurried to tighten credit, leaving real estate developers unable to execute projects. The State Bank of Vietnam has been trying to control real estate credit for fear that the ‘real estate bubble’ will burst and affect the national economy.


According to the State Bank of Vietnam, by the end of April 2008, the outstanding loans to the real estate sector had reached VND135tril, accounting for 10.8% of total outstanding loans of the banking system.


As a result, purchasing power has been sharply decreasing as buyers cannot access bank loans anymore.


This has helped cool the real estate market down – the thing that state management agencies wanted. However, in the long term, experts have warned that the current situation, if it continues, will not be a good thing for the market and Vietnamese enterprises.


Tran Bac Ha, Chairman of the Bank for Investment and Development of Vietnam (BIDV), said that it is now necessary to reconsider the real estate credit policy. He said that the demand for low-income housing, hotels and high grade offices is now very high, and that the outstanding loans of VND135tril prove to be not an excessive volume.


He said that what commercial banks need is suitable management methods rather than limitations on loans.


Le Quang Hung of Hung Thanh Trade and Investment said that it takes 4-5 years to put a project into operation. If investors cannot arrange capital now, the market will not have products a few years down the road. At that time, the market will experience a serious commodity shortage.


Suitable policies needed


A real estate expert said that risks do not exist in all segments of the market. The prices of luxury houses and tenements have been pushed up overly high, and funding these projects would be risky if the prices went down. Meanwhile, the segments of hotels, offices and industrial zones prove to be safe for banks to fund as the demand is very high.


Experts say that the halting of loaning for real estate projects will make the current frozen real estate market worse. They also said that outstanding real estate loans of 10% of the total outstanding loans proves to be under the safety line, and there is no need to be too worried about the so-called ‘real estate bubble’.


Vietnamese real estate firms have little capital, and they have been relying on bank loans 90% of the time. As banks have stopped loaning, a lot of projects being carried out are facing crises.

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