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Real estate credit: tightening may cause stagnation, pressure on inflation

The draft circular amending several articles of Circular 39 prescribing lending transactions of credit institutions and/or foreign bank branches has raised concern about the congestion of capital flow into the real estate sector and high inflation.

Capital to real estate sector gets stuck

Do Quang Tung in Hanoi wants to buy an apartment in Thanh Xuan district. However, he doesn’t have enough money. An apartment in the area is priced at VND3 billion at minimum. He decided to borrow VND1.5 billion from banks.

However, after contacting some commercial banks, he realized that he may not be able to get a loan because commercial banks are tightening their credit policies.

Nguyen Minh Nhat, director of an enterprise, told VietNamNet that he is waiting for disbursement of a loan worth VND2 trillion from a bank. But the money still cannot be disbursed since March as the bank informed him that disbursement "room" is running out.

Meanwhile, some commercial banks have halted the disbursement for clients who buy housing products that will take shape in the future.

“The information about credit tightening makes us feel insecure. Real estate firms are in dire need for capital from now to the end of the year,” he said.

SBV reported that as of the end of April, the total outstanding loans to institutions in the real estate sector had reached VND2.288 quadrillion, an increase of 10.2 percent compared with the end of 2021, accounting for 20.44 percent of total outstanding loans of the economy. Of this, the outstanding loans for real estate trading was just VND800 trillion, or 7 percent of total outstanding loans.

According to Ngo Tri Long, real estate is the sector that needs huge capital and the market would be ‘immovable’ if it lacked capital. Therefore, enterprises need capital from many different channels to ensure stable capital flow.

Agreeing with Long, an economist warned that the draft circular, if approved, will not only affect house buyers and real estate firms, but also commercial banks. Some commercial banks cannot disburse money because of the credit tightening.

“The real estate sector has relations with many other business fields. When the capital flow into the sector gets stuck, the entire production and business activities will become stagnant and prices will escalate, thus causing inflation,” he explained. “The stagnation of capital will be serious and may distort the market."

Vietnam needs to learn from Chinese lesson

According to Dinh Trong Thinh from the Finance Academy, in late 2020, China developed a policy on tightening real estate credit with three ‘red lines’, which did not allow real estate firms to borrow capital from banks.

As a result, the supply became short and realtors did not have money to pay to contractors. As a result, the real estate projects under construction came to a deadlock.

In April 2022, the housing sales dropped by 49 percent compared with the same period last year. The investments in real estate dropped by 2.7 percent and the investments in infrastructure by 6.5 percent, while the unemployment rate escalated to 6.7 percent with the rate 18.2 percent among the workers aged 16-24.

In May 2022, China had to change the policy, encouraging some localities to reopen real estate credit, depending on projects. The central bank requested to reduce the required collaterals and cut the interest rate from 4.6 percent to 4.4 percent in April. The Chinese estate market has warmed up.

Thinh believes that Vietnam should pursue a flexible credit policy with adjustments depending on market segments and moments. He also stressed the need to ensure the transparency of development planning and quality products to satisfy people’s requirements.

Regarding the draft circular to replace Circular 39, Chair Le Hoang Chau of the HCM City Real Estate Association, said that the draft document uses the words ‘controlling’ the ‘lending to fund house purchase and real estate trading’, which makes people understand that the central bank is going to tighten the lending to the real estate sector.

He said it would be better to replace the word ‘controlling’ with ‘managing’ or ‘strengthening the management’.

A representative of a foreign invested bank in Vietnam said policies need to be designed based on the movements of the market. If it applies administrative order in a rigid way, it will be a "non-market" move, which will affect the whole economy.

Tran Thuy

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