Real Estate Credit Still under Control

After years of staying quiet, the real estate market has built up a relatively big inventory. So now, as the market is getting warmer, it’s the opportunity to improve the market’s liquidity. The change of wind is steering investors’ business towards more attentive to the demands of customers.

 

When the market was “hot”, it was normal to see buyers waiting in long lines for their turn to draw and try to win the chance to purchase a house, even when they succeeded, they had to make payment in advance (up to 90 percent in some projects), investors then used this money to launch new projects, which meant they were unable to guarantee the schedule of construction progress due to a lack of control over capital. But now, investors who want to sell their products must honour commitments to construction progress, they also cooperate with banks to create preferential loan packages to draw in home buyers.

 

Salespeople at trading floors also diversify their methods of approaching customers, from sending text messages, emailing or even calling directly to introduce attractive offers.

 

Currently, most projects, from low-end to luxury, are offering attractive promotional packages that focus mainly on low interest loans for house buyers such as zero percent interest for 12-24 month loans; 9- 11 percent loans for individual customers whose income is more than VND10 million/month; there are even loans with a lifetime interest rates of 3.5 percent/year, etc.

 

The fact that the majority of current projects have to join hands with banks to provide buyers preferential loan packages to sell houses poses a question that whether banks’ credit is flowing too much in real estate?

 

According to experts, however, the amount of bank credit flowing into the real estate market hasn’t yet reached an alarming level. A closer look can reveal that although banks are willing to give home buyers loans, the requirements have been tighten compared to the previous period (2007- 2009).

 

For home buyers who wish to take out loans they need to prove their incomes, sources for payment, collateral (usually hold low value with banks, only about 40- 50 percent of market value). So far banks seriously comply with this regulation under the general guidance on real estate lending, subject to the provisions on credit standards. Banks are also creditors of enterprises who are the investor of real estate projects and similar to the case of individual customers, enterprises don’t have it easy at borrowing money.

 

The inventory in the real estate market remains quite large, whereas the on-the-way-to-improvement market liquidity hasn’t been good enough yet, therefore at this stage, with projects under implementation or about to be launched, banks only lend money to projects of reputable investors. As for projects at finishing stage, the banks require an at least 50 percent completion for loans.

 

According to the State Bank, by the end of August 2015, the growth rate in real estate was about 13 percent, higher than the credit growth of the economy, while debt forecast for this sector accounts for only 8 percent of total outstanding debts.

 

The real estate market has always been sensitive to the introduction of new policies. In the past, the amendments relating to land law or real estate business when going into effect made the market slow down or even go downturn. The amendment of Land Law in 2003, Real Estate Business Law in 2006, and just recently Real Estate Business Law 2014 (taking effect since July 1st 2015) all made the market react negatively for a short time.

 

In the new Real Estate Business Law going into effect starting from July 1, 2015, a content that piques the interest of many is the removal of real estate trading floors to move to compulsory guarantee, which currently is under development to solve outstanding issues.

 

Many new issues were also raised, such as the scenario when the home buyer already receives bank guarantee and finishes making payment but the investor fails to comply with the contract, how will the bank deal with this situation or compensate the customer? Or the case when the buyer fails to comply with the credit agreement signed with the bank, if the customer’s mortgage is assets that is not yet formed, will the bank have the right to sell it or not?

 

With so many unresolved questions like those mentioned above, the majority of people as well as investors are anticipating an official guideline from the concerned agencies. That’s also the reason why experts believe that the market cannot take off yet and the real estate credit is still in control.