2022 was another tough year for the real estate sector, which makes up 10 percent of GDP each year. Difficulties are expected to continue this year.
VietNamNet talked to Tran Nguyen Dan, a senior lecturer of the HCM City Economics University, about the issue.
Many real estate firms complain they find it difficult to access bank loans. What do you think are the radical solutions to the real estate market at this moment?
In principle, real estate firms must have financial capability when implementing projects. But in fact, most of them are empty-handed.
Instead of gathering big financial resources to implement a project, the firms use their money to collect land plots and spend money on expenses to obtain legal status for the projects.
As a result, the execution of projects absolutely depends on borrowed money. That is why the debt-to-capital ratios are very high.
Real estate firms want to have more capital to continue construction which allows them to collect more money from buyers (buyers make payments in stages).
However, the key problem here is that market liquidity is stuck. Even investors cannot access loans and cannot buy properties.
Therefore, if we continue disbursing money to real estate firms even though the market is frozen, the default probability rate of the enterprises will be even higher.
So, lending to clients to buy properties is the most important thing now.
The Government has issued a series of directions related to real estate credit, while the State Bank of Vietnam (SBV) has had a meeting with bankers and real estate firms. What are the problems they mentioned?
Actually, it is not true that SBV doesn’t want to raise the credit growth rate limit for the real estate sector. The central bank fears that if continuing to pump money, the well-inflated balloon will burst.
The crucial problem for further lending lies in capital adequacy. How can real estate firms persuade banks to provide loans to them if they don't even have confidence in their sales capability?
I believe that only firms with a good financial situation should be given loans.
Firms with good financial situations are understood as businesses with a debt-to-capital ratio of below 1; with clear business plans; and with collateral valued at twice as much as the amount of money they want to borrow.
Do you think that developing small apartment buildings and focusing on developing low-cost products is a good choice for now?
What I have seen in the last 10 years is that realtors don’t develop low-cost housing projects, but just target the high-end market segment.
In general, the locations of projects play a very important role determining the success of projects. However, developing projects in advantageous positions requires huge official and unofficial costs.
Realtors will certainly take a loss if they develop low-cost housing projects. Developing low-cost housing is difficult work, but it is not impossible. The state’s role will be the most important. Providing low-interest credit packages to first-time buyers will also play an important role.
The real estate credit ratio of commercial banks is relatively high, while the market is controlled by "big guys" which focus on developing high-end products. What do you think about this?
In principle, real estate credit proportion of 21 percent is not too high if the market develops in a healthy way. However, the problem is high speculation rate, which makes real estate credit risky. Therefore, 21 percent is a worrying figure.
The thing that needs to be done is not slashing real estate credit, but restructuring loans. It is necessary to prioritize lending those who buy houses for the first time and raising lending interest rates on speculators, provide loans to the realtors with a healthy financial situation and good project execution capability.