Restrictions on real estate credit bearing fruit

18-Sep-2018 Intellasia | VN Economic Times | 6:00 AM Print This Post

Recent moves to restrict credit for real estate are having an effect.

One day in July, Nguyen Mai Phuong, a 45-year-old businesswoman living in HCM City’s Binh Thanh district, visited a few banks to seek a loan of VND2.5 billion ($110,000) to purchase land. She was told of the new interest rates on home loans, ranging from 8-10 per cent per annum for the first year, depending on the customer’s objectives, and then 11-12 per cent. “I’m re-considering my plans, as these rates are much higher than a few months ago,” she said.

Most local real estate developers have also been restricted in approaching capital resources over the last year due to the State Bank of Vietnam (SBV)’s moves to tighten capital flows into the local property market by raising the credit risk on real estate loans and reducing the proportion of short-term capital to be used for medium- and long-term loans by commercial banks, due to concerns about bad debts amid the land price “fever” in the country.

Limited access

Accordingly, banks have raised rates on property mortgages by 1-2 percentage points over the last few months, with lending rates rising to 12 per cent for mid-term loans and 12.5 per cent for long-term loans. “Such steps are aimed at market stability per a specific roadmap after a long time of strong development, and have been a test for real estate developers that overly depend on bank credit but which will help purge the local market,” said Pham Ngoc Thien Thanh, Research and Consulting manager at CBRE Vietnam.

Total outstanding loans in real estate and consumer lending have increased sharply in recent times, making it necessary to limit consumer loans being used for investment in the real estate sector. The sector has been booming for some time, leading to a rapid surge in land prices in areas poised to become special administrativeeconomic zones, according to the Vietnam Real Estate Association (VNREA).

Figures from the SBV show that outstanding loans in the first half of 2018 rose 6.16 per cent compared with the end of last year. Consumer lending grew 6.86 per cent and real estate loans by just 2.19 per cent; significantly down on 2017. Credit growth was reported at 8.56 per cent last year compared to 12.86 per cent in 2016. At the same time, loans for real estate investment and business activities reached $20.2 billion, accounting for 6.5 per cent of the total, down from 7.7 per cent in 2016.

The central bank has adopted measures since earlier this year to exert strict control over credit in real estate by way of limiting loans to no more than 70 per cent of a property’s value instead of the previous 80-90 per cent. It attributes the measures to concerns over market risk, with the real estate credit risk jumping from 150 per cent to 250 per cent in the past few months. In Circular No. 19 issued late last year, the SBV put forth a target of reducing the use of short-term deposits for mid- and long-term loans in 2018 and 2019 to 45 per cent and 40 per cent, respectively, instead of the previous 60 per cent.

Having learned a number of lessons from the real estate bubble and downturn in the 2008-2013 period, the SBV has set its sights on 17 per cent credit growth this year and has requested credit institutions closely monitor growth by limiting loans for property and stocks and supervising consumer loan borrowers who actually invest in real estate and securities. “Along with interest rate increases, some banks have tightened their cash flows to real estate by cutting preferential loans, pushing up interest rates on pre-payments, and setting stricter conditions for borrowers, which makes developers and homebuyers face more difficulties in accessing loans,” said Huynh Ba Lan, Chair of the Kien A JSC.


Category: Finance, Vietnam

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