Banks Hold Real Estate Debt

In reality, many investors currently have to mortgage their mansions in order to secure funding to invest in real estate. The rule is that banks lend up to 70 per cent the mansion’s value. However, at the moment, the real estate market is going quiet, many investors who do not have enough money to pay back bank’s loan have to accept foreclosure.

 

For example, previously, if the value of the mansion were VND10 billion, banks could lend up to VND7 billion. But the market has now gone down, the value of the mansion decreases to VND4-5 billion. Thus, even when banks have completed the foreclosure process, there is no buyer; and even if there is, the price will be below the mortgage payment, resulting in an increase in bad debt.

 

Investigation by reporters reveals that at some projects, to find a unit and mansion in a new metropolitan project which is foreclosed and on sale for a song is not difficult. This is because in the loan contracts, if the borrowers cannot make the payment when it is due, the lenders will automatically foreclose and put the properties on sale to get their money back.

 

At Van Canh project, purchasing price ranges from VND30-40 million per sq.m, but the foreclosed units are on sale at VND10-12 million per sq.m cheaper than the market price. At Kim Chung-Di Trach, price ranges from VND32-35 million per sq.m, but for some units lenders are willing to sell at VND22-25 million per sq.m.

Van Khe apartment project has the market clearing price of VND19-22 million per sq.m, but some units are currently on sale at around VND16 million per sq.m. At Duong Noi project, the average market price is VND40-45 million per sq.m, but foreclosed units are on sale at around VND30-32 million per sq.m. At Van Phu project, the market price is about VND50-55 million per sq.m with narrow road, upwards of VND60 million per sq.m with wide road, but many units are on sale with amazingly cheap price of VND42-45 million per sq.m

 

Representative of Ha Dong Branch of Vietcombank said that banks wishing to sell off assets have to go through three court levels and many other procedures. After determining that the borrowers cannot make the due payment, in order to sell the foreclosed properties, banks have to go through General Court, Appealing Court and Supreme Court etc. While bad debt keeps increasing, banks still cannot find ways to sell off a foreclosed real estate property.

 

According to a representative from Vietcombank, if there is no market-oriented approach to handle bad debt, the issue will never be resolved. Thus, many banks are in fact still willing to extend credits for investors to finish their projects (with the condition that the investors will pay back a portion of the old loan – about 70 per cent). If banks did not do so, value of these bad debts would keep going down over time. Banks believe that if they keep pumping in money, there might be a chance that the borrowers will be able to pay back in full and banks might even make a profit from the transactions.

 

Mr Cao Sy Kiem – former Governor of the State Bank of Vietnam and Chairman of Small and Medium Enterprise Association told reporters that the pressure to increase outstanding credits recently has pushed banks’ owners to increase real estate loan contracts. At that time they could not exist without accepting these contracts, but at the time being banks find themselves entangle in the real estate debt without having a clue of how to resolve the issue. In other countries, if the borrowers cannot make the due payment, they will have to immediately evacuate their mortgaged houses without banks having to spend years like in Vietnam.

 

The feasible solution at the moment to handle bad debt is establishing the Debt and Asset Trading Corporation and the VND100-trillion proposal. If the bad debt acquiring company is established, this company will fall under the banks’ radar. According to some economics expert, people should not be too worried about the “development” of this company, because when the economy goes up and bad debts and overdue debts reduces, the company will itself dissolve. The buying and selling of assets and debt certificates etc. will adhere to the law, the appraisal agencies and will be monitored by responsible governmental agencies. Therefore, businesses should not be worried about its transparency and fairness.