Given recent actions directed at lending, there is virtually no chance of a real estate "bubble" appearing in Vietnam's real estate market this year or next. 
 
Stemming from concerns expressed since the beginning of the year about the appearance of a real estate “bubble”, the Governor of the State Bank of Vietnam (SBV) has directed banks to limit any lending focus on the real estate sector, supervise and assess lending, follow the progress of the property project a loan is intended for, and examine borrower’s financial capacity and assets to adopt consistent measures to curb risks. Credit pouring into the real estate is considered to be under control following the direction.

Credit growth restricted

In order to restrict credit in the real estate sector, the SBV Ho Chi Minh City Branch noted that banks must fully appraise whether lending is for housing or speculation. 

Banks in the city have seriously tightened real estate lending, appraised property prices, reviewed average prices over a certain period, not just during any period of “price fever”, adjusted property lending rates, and restricted loans in projects where there is “price fever” and for land purchases. 

Thanks to such controls, credit growth in the real estate sector in the banking system as a whole was low in the first five months of 2018. 

According to Mr. Nguyen Quoc Hung, Director of the Credit Department at the SBV, overall credit growth was 6.16 per cent in the first five months, with capital primarily going to production. 

Credit growth in the real estate sector in the first six months is estimated at 2.19 per cent, while loans to build-operate-transfer (BOT) projects increased 2.15 per cent and was down 3.12 per cent for stock market activities. 

Such figures show that the SBV’s measures in instructing, supervising, and inspecting credit institutions are having the desired results. 

Figures from the SBV Ho Chi Minh City Branch revealed credit growth in the city stands at 7.5 per cent; higher than the country average. Loans to real estate accounted for 10.8 per cent of total outstanding loans of VND1.89 trillion ($82.9 million) and have been considered stable over recent years. 

The figure was 30 per cent in 2007-2008 and had a negative impact on the market and on the banking sector. The SBV has directed commercial banks to only approve loans to projects from reputable developers. Bad debts in the real estate sector represent 2-2.5 per cent of the total in the southern city.

“To prevent risks from higher credit and bad debts in real estate, commercial banks have compiled statistics on average land prices for the last three or four years,” said Mr. Nguyen Hoang Minh, Deputy Director of the SBV Ho Chi Minh City Branch. 

“Loans now represent 50 per cent of property value instead of 70-80 per cent as in the past. Lending to the sector is no longer a concern.” 

Attention shifts to consumer loans

Though credit institutions have enhanced control over real estate credit, credit growth remains high. 

According to Mr. Minh, real estate loans are to fall from 10.9 per cent of the total to 10.7 per cent, while consumer loans are to increase. In the past, loans for production accounted for 77 per cent, property loans 11 per cent, and consumer and stock market loans 12 per cent. 

As at late May, however, consumer and stock market loans accounted for 14 per cent while production loans fell to 76 per cent. 

Figures from the National Financial Supervision Commission are similar. Property and construction credit increased only 12.2 per cent in 2017, accounting for 15.8 per cent of the total and down against 17.1 per cent in 2016. 

Conversely, loans for purchasing and repairing houses (tallied as consumer loans) increased 76.5 per cent in 2017 and accounted for 9.52 per cent of the total, up against 6.09 per cent in 2016. 

The NFSC has warned that some local banks have tallied loans for real estate trading as house purchasing and repair loans, making an exact figure difficult to determine. 

Land prices have headed ever upwards and made the market active, leading to an increase in those investing for profit. Banks have also boosted loans to the real estate industry because of the high lending rate imposed. 

According to analysts, the SBV has determined that consumer loans are defined as “loans serving living”, so that banks and financial institutions distinguish them from other loans. Such loans include those for purchasing motor vehicles and home appliances and for house building, repair, and purchase. 

Analysts have warned that banks need to be careful with the issue and be flexible. The caution relates to factors such as supply and the status of the market and does not mean they are not permitted to grant loans. 

Legal measures 

At a recent meeting of the Vietnam Real Estate Association held in mid-June in northern Quang Ninh province, Deputy Minister of Construction Nguyen Van Sinh said that, basically, regulations on the housing segment and the real estate market as a whole are now comprehensive and related circulars are clear. Issues remain, however, in implementation. 

Meanwhile, real estate companies have identified many issues in the existing legal framework that hinder their development and the development of the real estate market. 

The Ministry of Construction will take such concerns on board and shortly propose the government amend regulations to make them consistent with the actual situation, according to Deputy Minister Sinh. 

The ministry is currently working with the Ministry of Culture, Sports and Tourism to approve regulations on condotels. “In the short term, the ministry will use the concept of ‘tourism apartment’, not ‘condotel’,” he said. 

The association also continues to cooperate with the ministry to complete a draft amending certain articles of the Laws on Construction, Housing, Real Estate Trading, Urban Planning, and Urban Development Management, which will be submitted to the government during 2018-2019. 

The association and the Ministry of Justice have also implemented the “Complete legal issues on contracts and the settlement of civil disputes by methods outside the courts in accordance with comprehension and assuring effective enforcement and asset rights protection, and to recommend to the National Assembly and the government matters regarding other legal documents related to the real estate market in Vietnam” project. 

According to Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association, predictions about the market in 2019 at this time are premature. 

“However, if development trends and market status continue as they are, there is little chance of a real estate bubble appearing,” he said. 

“Some had concerns over recent years about a bubble appearing this year, but our forecasts are based on data from 2017 and early 2018 and the nature of the real estate bubbles that appeared in 2007 and 2010.”

VN Economic Times