Nguyen Minh Tuan and his wife in Ha Dong district in Hanoi are considering apartment projects in suburban areas. 

Tuan said real estate prices are increasing too sharply, which has made it difficult for young couples like them to buy houses. Tuan has VND1.5 billion and plans to borrow VND800 million to buy an apartment. Their total income is over VND20 million a month.

Hearing that commercial banks are tightening home loans, Tuan are worried. “If banks refuse to provide loans, we won’t be able to buy an apartment.”

Tuan, like many others, has real demand for accommodation but has a low or moderate income, and has to use financial leverage to buy houses.

Nguyen Thi Thao in Hanoi is seeking to buy an apartment in Thanh Xuan district. With limited financial capability, Thao plans to borrow VND600 million from a bank. 

“Previously, banks could provide loans worth up to 70 percent of the assets. But they have reduced that to 50 percent. This means that banks only lend VND500 million to buy an apartment worth VND1 billion instead of VND700 million,” she explained.

According to Thao, the tightening of home loans is to reduce demand for real estate, thus reducing the heat in the real estate market. However, there should be mechanisms which allow people who have demand for accommodations access to bank loans.

A representative of a bank said each bank follows its specific lending strategy. The growth rate of real estate loans provided to individual clients is relatively high, and the bank doesn’t want to increase loans to the sector, but wants to increase loans to production and business. This is in line with the State Bank of Vietnam’s (SBV) policy under which credit to real estate business is strictly controlled.

Keeping a close watch over the Vietnamese stock market for the last 15 years, Savills Hanoi managing director Matthew Powell said he has seen cycles of huge speculation, especially in the residential real estate sector in Hanoi and HCM City. At times, investors use financial leverage via short and long-term loans to make large amounts of short-term investment deals and surf for investment. The market is very active, but that means borrowers may become insolvent.

Cooling the market down

Ngo Quang Phuc, CEO of Phu Dong Group said the tightening of lending to the real estate market will immediately have an impact on both buyers and real estate developers.

If real estate firms cannot borrow capital from banks, they won’t have money to develop their land banks and will spend money on other expenses such as building and project guarantees. Because of the difficulties accessing bank loans, the supply will be limited.

Meanwhile, if buyers cannot access bank loans, they won’t be able to buy houses and the opportunities for low-income people to buy houses will diminish.

“However, as far as I know, the tightening of credit is a policy applied by some commercial banks only, not all banks,” he said.

Dinh Manh Tuan, a representative of an analysis firm, stressed that banks are tightening lending, not stopping lending. However, the tightening will still affect the real estate market and will cool the market down, and drive capital to production and business, which are the priorities.

“Suppose that the credit limit of a bank is 20 percent, of which 8 percent for real estate and 12 percent for production and business. However, if the real estate market grows very rapidly, nearly all the 20 percent goes to the real estate market,” he said.

In 2008-2010, the ‘credit room’ for lending to the real estate sector was very high – 25 percent. When the credit was tightened, there was a wave of bargaining real estate away.

In 2022, banks therefore tightened capital inflows into the real estate market. Those who can buy real estate without loans will have advantages. This will also make the market more stable.

Duy Anh