Credit for Real Estate: Loosened but Still Tight

The loosening of credit for real estate was activated by the SBV at the end of 2011, specifically eliminating 4 real estate groups out of the non-production basket. However this effort was not strong enough to warm up the market at that time.

 

Stepping into 2013, the Vietnam Government continued issuing Decree no. 2, which gave many policies to support the market such as VND 20,000 – 40,000 package for providing cheap credit to people buying social houses with interest rate of 6 percent per year through refinancing commercial banks. At the same time, the SBV also opened a way for banks to develop real estate credit, issuing open mechanisms, creating more favourable conditions for real estate enterprises to access credit.

 

As real estate credit supported by the SBV, most commercial banks offered preferential credit packages for individual customers to buy or repair houses.

 

Leading in this action is the Bank for Investment and Development of Vietnam (BIDV), which offers a programme connecting four players (banks, investors, constructors and construction materials providers), and credit package of up to VND4 trillion for customers buying houses with low interest (12 percent per year) within the first 6 months from disbursement, with maturities of 15 years.

 

Vietcombank also spends VND2 trillion with interest rate of about 12 percent per year for customers aiming to do business, buy or repair houses. Besides, Vietcombank also connects with Ecopark to offer interest rate support for those who buy one of Ecopark’s products with interest rate of 8 percent per year with 1 year since disbursement.

 

Another bank is Eximbank with credit package of VND5 trillion with interest rate of 12 percent per year within the first 2 years.

 

Many other banks provide favourable terms to customers buying houses, for examples VIB launches a loan programme for buying, constructing, repairing houses with maximum of VND 1 trillion and interest of only 9.9 percent per year within the first 3 months. Techcombank also offers a loan programme for consumption and buying houses with interest rate of 12.99 percent per year within the first 3 months.

 

Positivity and determination of many banks through preferential programmes for house buyers and especially investors become an opportunity of warming up real estate.

 

According to Mr Nguyen Van Binh, SBV Governor, because of the huge total debt of real estate, in the short time, real estate inventories need solved to unfreeze the financial resources for community. Based on this solution, materials production industries like cement, steel will be recovered, as the result, thousand of jobs are created in labour market, helping unfreeze the capital flows in the economy and diminish bad debts in banking sector.

 

Even with such determination, tightly constrained conditions make the credit sources flow to the market become hardly low.

 

According to the latest report gathering all surveys about the business tendency in credit institutions made by the Monetary Statistics and Forecast Department (SBV) implemented in 2013, credit institutions keep tightening credits for real estate businesses and securities trade. Credit growth of banking system is not improved, causing difficulties in implementing current policy.

 

In fact, during the long term, credit source “pumped” to the market was large, while the boundary conditions were very simple; as the result, banks have paid an expensive cost since when their bad debts become larger without solutions. This problem forces banks to give loans more carefully to real estate.

 

As the consequence, out of general tightly constrained conditions of credits, current credits particularly target low income customers to buy houses, or to projects that have links between bank and project owner, aiming to solve inventories for banks themselves. Therefore, projects that have no link between bank and project owner from the beginning can hardly access these concessional loans resources, even the majority of people are not able to access them.

 

Loan interest rate has also been interested by many people. Even several banks have committed loan interest rate of 8 - 9 percent annually within the first three months, and then increases afterward. However, the specific increasing amount is not published, and this becomes the question affecting people's decisions to invest in real estate.