Real Estate Market May Thrive This Year’s End

After more than one year being put under the list of tightened credit due to industry risks, several commercial banks are considering a U-turn change in credit policy to real estate products.

 

Many commercial banks, especially joint stock commercial banks, are seeing the real estate lending as one of the vital products to boost retail banking.

 

The resumed lending is rooted from the belief that the real estate market has huge potentialities and low risks due to low prices.

 

The lending to real estate by the banking system rose 0.5 per cent-1 per cent per month in the first four months of 2009. Realties in banks in Hanoi and Ho Chi Minh City accounted for 10 per cent, more or less, of total outstanding loans. Outstanding loans in several joint stock commercial banks are reportedly accounting for 14 per cent-20 per cent of total outstanding loans.

 

Unlike the start of the year when real estate lending was only for individuals to buy houses and land to live, many banks are now focusing on corporate borrowers.

 

Most banks want to seek strategic investment relations with large housing investors like HUD, Vinaconex, Phu My Hung and Thu Duc House. These relations are mutually beneficiary. Investors have capital while banks help them sell houses to individual borrowers. Banks will suffer fewer risks when they finance both realty investors and customers.

 

Arguably, the real estate lending is a heating front for commercial banks. Borrowing conditions are now easier and credit and maturity limits are also moderated. The lending value has been raised to 90 per cent of apartment value and the maturity is up to 20 years. Several banks have opened housing investments instead of only lending to buy houses and lands to live as several months earlier.

 

With many lending-based stimulus measures, the liquidity of the economy is significantly improved but there are still problems to be solved. Money has still shunned banks although deposit interest rates are higher.

Short-term capital is unstable, easily moving from market to market and from bank to bank. Subsequently, it disorders markets and increases speculation, thus, affecting the liquidity at commercial banks, especially those with higher ratios of medium and long-term loans out of their total outstanding loans.

 

Amongst many markets, only the stock market has heated up. It means this market is generating super profit in relation to other markets. It is easy to see that the stock market is a bubble being pumped up by short-term money of the entire society and the burst is also possible while the foundation of the stock market, the health of listed enterprises, stays unclear. Thus, it is necessary to redistribute the short-term capital into more markets.

 

Therefore, the stimulus for real estate market is now suitable as it helps cool down the heat of the stock market while giving a boost to other economic fields. At present, stimuli for production fields have almost reached effectiveness limits.

 

When banks “opened” their coffers to real estate market, the demand has steadily risen.

 

There are many signs to envisage the recovery of the real estate market by the end of this year. For that reason, banks are accelerating real property lending and real estate owners tend to keep their goods for higher prices. Deposits for apartments, villas and semidetached houses soared.

 

At present, the lending interest rate is still high, around 12.5 per cent - 13 per cent per annum. To attract customers, several banks with strong financial capacities have lowered lending interest rates. Many other banks will follow their step.

Money from the stock market is going to be poured into the real estate sector. According to experts, August will be the golden time for stock investors to sell and invest in real estate to divert risks.