Cash Flow Rescuing Real Estate Market

Vietnam Construction Bank (VNCB) teamed up with Thien Thanh Group to announce a credit package of VND50 trillion on March 25. This credit package aims to strengthen the four-party chain - formed by banks, manufacturers, contractors and investors - to build professional construction material trading floors. In this chain link, VNCB is committed to fund construction and property firms. Four other big banks, namely BIDV, Agribank, Vietcombank and Vietinbank, also joined this credit package. In addition, some big commercial lenders registered with the State Bank of Vietnam (SBV) to lend VND70 trillion to the property market. Hence, the market may have the chance to digest up to VND120 trillion in the coming time.

 

While many property businesses are moribund because of excessive inventories, many projects remain unfinished on lack of capital for continued construction, and market confidence is very volatile, the capital source may be the cure for the lacklustre market. Of course, we cannot assure of their success because the result depends on realities, the funding of banks and the capital use of borrowers which may use new loans to swap old ones. The SBV affirmed that property loans must strictly follow stringent regulations and only highly feasible projects are accessible to capital sources.

 

A financial expert said some banks are expected to launch bigger credit packages than VNCB in the coming time. The financial source is now valuable and useful on the real estate market for the time being. The capital flows into the property market is likely to cause spill-over effects, build up the investor confidence and then revive the market in the end. Before the above-mentioned stimulus funding was officially confirmed, the Ministry of Construction also proposed market supporting solutions to the Prime Minister. Accordingly, the Ministry suggested the Prime Minister ask localities not to grant new permits on construction of commercial houses, new urban zones in 2014. The ministry also asked local governments to shorten the time for changing apartment structure, converting from commercial housing projects to social housing projects.

 

The ministry also asked the Prime Minister to permit classified and categorised housing and urban projects to keep on the progress by allowing investors indebted to land-use money, yet to start business but current market prices lower than investment costs to recalculate land-use money payable toward the current market price and not to pay fines because of late land-use money payment. These policies will help investors trapped in property projects.

 

In addition, it also proposed the Prime Minister to modify a number of provisions with the purpose of accelerating the disbursement of the VND30 trillion credit support package, which is being clogged-up. The payment term is proposed to be raised from 10 years to 15 years, applicable to individual borrowers. In addition, it suggested widening the scope of borrowers. The package should also provide loans for buyers of commercial houses with a total contract value not exceeding VND1.05 billion, including both land and house value; for residents in flooding-prone areas to build or repair houses with an interest rate of 4 percent per annum. Beneficiaries to the package are also proposed to add dwellers in urban zones, civil servants and military servicemen and the total individual loan does not exceed 80 percent of VND1.05 billion.

 

The ministry also recommended allowing more banks to disburse the VND30 trillion package rather than only five top lenders as now. Procedures must be made consistent from bank to bank.

 

Property market support credit packages, together with proposed policies, have opened up opportunities for the market. The real estate market is still waiting for bailouts, policies and upcoming capital flows. However, some financial experts are still apprehensive about real estate inventories which are hampering new capital into the market. If this backlog is not deal with thoroughly, the market is unlikely to have a solid recovery.