The recent development of the real estate market has been restoring the confidence of people and investors. However, behind this development, economic experts warn that the market still bears too much risk, and one of the main reasons is the heavy dependence of the real estate market on the financial markets.
“Milk pumper” of the real estate market
In recent time, the number of transactions of all segments, especially the affordable housing segment, has increased rapidly; there has been almost no decline in the housing price. This proves a gain in confidence in the real estate market.
However, the flourishes have been attributed to the banking system, of which the most recognizable signals are the increase of the outstanding credits of the banks. According to the statistics of the Department of Planning and Investment of Ho Chi Minh City, the equity of enterprises account for only 15-20 percent of their total investment, while the rest of the capital, equal to 70-80 percent of the real estate value, comes from the bank.
With support from the banks, many projects have been revitalized after a long delay due to lack of capital. For example, Supported by the Saigon-Hanoi Commercial Joint Stock Bank (SHB), Tan Hoang Minh is now able to complete some of its unfinished high-end projects. Accordingly, the SHB agrees to sponsor VND1 trillion for Tan Hoang Minh to develop the Le Pont D'or luxury apartment on Hoang Cau street, Hanoi and at the same time, the bank allows the buyers of the project to make a loan up to 70 percent of the value of the apartment for up to 25 years.
Besides Tan Hoang Minh, many other projects also have to get loans from banks to finish their projects. The Diamond Flower has just signed a VND500 billion loan contract with the Lien Viet Post Bank to complete its project. Hai Phat Investment JSC has also signed the loan contract of VND500 billion with the Military Bank to finish its Pride Condominium project. In its efforts to strengthen the market, the State Bank of Vietnam (SBV) has asked eight banks to participate in the linkage of VND50 trillion with four players being bank, investor, contractor and supplier of materials.
Along with the loan support for the investors, the banks also give soft loans to the buyers. The buyers of the Le Pont D'or project have received loans from the banks with interest rate of 8.68 percent in the first year, and 3.68 percent of the total interest rate from the Tan Hoang Minh, so they are subject to the interest rate of only 5 percent in the first year.
The banks are working to support the investor's projects and assist home buyers with low interest rates to help the real estate soon recover and increase market liquidity. However, from the perspectives of the economists, this support will also put the economy in general and the real estate market in particular at risk.
According to Dr Le Xuan Nghia, Deputy Director of the National Financial Supervisory Committee, we all recognise the thriving of the economy and the recovery of the real estate market as well as the association and the dependence of the capitalisation of the real estate market on the financial market. In Vietnam, a prominent feature of the real estate market is clearly dependent on the credit policy as well as the dynamics of the banking system.
Recently, banks had to squeeze the lending of the real estate market, and the lending rate is very high. Therefore, the investors found it difficult to get loans to implement the project and investors who could get loans from the banks would be more difficult to balance between profits and interest rate.
Facing risks
The dependence of investors of the real estate market on the financial markets is too big, which makes many investors in this sector face risks because of too large a debit balance, while the capital investment are depleted, causing several real estate projects to be forced to stop.
The Vietnam Report, after a long period of surveys and reviews, assesses that the remarkable dependence on the bank loans will make the real estate sector suffer from the big risks.
According to Dr Tran Kim Chung, Deputy Director of the Central Institute for Economic Management, the operation of the real estate market still depends heavily on the flow of money from the commercial banking system. The credit balance of the commercial banking system to the real estate market as of the December 2013 is estimated at VND268 trillion. The bad debts of the banking system in the real estate sector grew very fast and were extended in large scale.
According to the calculation, the bad debts of the banks for the real estate market are up to 46.4 percent of the total bad debts of the whole system. The State Bank of Vietnam once again must renew the bad debts.
Thus, the "point of clogging" of the bad debt of the banks once again needs a longer time to be broken. This issue raises a great concern.
Therefore, the investors should focus on real estate development resources for viable projects, narrowed the deployment of new projects, and joint ventures as well as associated with the related party to finish the feasible project. The potential investors should understand the market situation, market trends, project areas, and capacity to be able to develop the right investment decisions. Besides, they need to balance the financial capacity, ability and expected profits.
Luong Tuan
Vietnamese
