Editor's note: Party and government leaders have expressed strong resolve to guide Vietnam’s real estate market back to a healthier trajectory.

Housing prices in Vietnam have become a pressing issue - not just because of their impact on everyday life but also due to their influence on credit, financial stability, and GDP growth. Ministries and agencies are actively developing policies to institutionalize this directive. The key challenge: cooling down prices without causing a market crash.

Vietnam’s real estate sector has just emerged from a prolonged slump and now holds significant weight in the national GDP. A single misstep could trigger widespread repercussions across various economic sectors.

With the aim of contributing constructive analysis and recommendations for sustainable development and appropriate institutional reforms, VietNamNet launches a new series: How can Vietnam bring housing prices down? This is a litmus test for national governance and market confidence in the upcoming reform era.

Legal confusion over credit caps

In the draft resolution on mechanisms for real estate price control, the Ministry of Construction proposed limiting housing loans based on the number of properties a person owns. Under the plan, buyers of a second home could borrow a maximum of 50% of the contract value; for a third or more, no more than 30%.

The stated goal is to curb speculation and stabilize housing prices. However, from both a legal and practical standpoint, this proposal is unlikely to hold up.

Vietnam’s Law on Credit Institutions and the Law on the State Bank clearly stipulate that only the State Bank has the authority to issue and supervise credit safety indicators such as risk coefficients, capital adequacy ratios, and loan-to-value (LTV) ratios.

Commercial banks operate under this legal framework and are regulated solely by the central bank - not by other ministries.

Dr. Le Xuan Nghia, former Vice Chairman of the National Financial Supervisory Commission, commented: “This proposed loan limit violates the law and contradicts the Constitution, particularly the right to business freedom.”

In essence, the Ministry of Construction has no authority to dictate lending conditions to banks, even under the guise of market stabilization. Credit policy falls under the domain of monetary policy - not housing administration.

If adopted, the proposal could directly conflict with the State Bank’s circulars, leading to a “two commanders, one policy” scenario.

Existing regulations are sufficient

The State Bank has long controlled real estate credit through Circular 22/2019/TT-NHNN and Circular 41/2016/TT-NHNN. These provide a comprehensive regulatory framework: loans for social housing or homes under VND 1.5 billion (approx. USD 60,000) carry a 50% risk weight; personal loans of VND 4 billion (approx. USD 160,000) or more are weighted at 150%; and investment property loans are weighted at 200%.

This system works by increasing capital costs for high-risk segments, naturally guiding banks to limit speculative lending. Circular 41, which aligns with Basel II standards, also classifies risk based on LTV, debt service coverage (DSC), and loan purpose - giving preference to affordable, owner-occupied homes with solid collateral.

The Ministry’s proposal of a flat 50%-30% cap overlaps with and disrupts the logic of this existing framework. Banks already operate with an “automatic brake” in the form of risk coefficients and LTV ratios - an administrative override would act as an unnecessary “emergency brake.”

Implementation is nearly impossible

Even putting legal issues aside, the policy would be virtually impossible to enforce. Vietnam lacks a nationwide land and property database, making it extremely difficult to determine how many homes a person owns.

Without unified data across tax, land, and banking systems, no one can definitively identify whether a borrower is buying their first, second, or third home. This opens the door to widespread loopholes - borrowers could easily exploit name transfers, household splits, or legal entities to circumvent the rule.

According to Dr. Nghia, no country controls the housing market by limiting loans based on property count. In developed economies, central banks regulate credit through capital tools, while governments intervene via tax policies or social housing programs.

Even China, which once attempted similar credit and tax restrictions, failed to achieve meaningful results. “China’s experience shows that neither credit limits nor higher taxes can fix a flawed market. The root issue lies in supply-demand imbalances,” he said.

The real problem: market structure

Vietnam’s real estate woes stem from structural distortions. Luxury housing prices reflect land, infrastructure, and market segmentation - not factors easily controlled by policy directives.

Instead of imposing rigid credit controls, the government should develop distinct housing segments aligned with income levels. Let high-end housing run its course, while actively supporting affordable and social housing development to ensure balanced supply. This approach is fair, sustainable, and market-aligned.

Concerns about excessive property lending are unfounded. According to Dr. Nghia, Vietnam’s real estate credit stands at VND 4 quadrillion (approx. USD 160 billion), about 25% of total credit. By comparison, the figure is 30% in China and averages 47% across Europe - indicating Vietnam remains in a safe zone.

To curb speculation, the right tools must be used. Property taxes and progressive tax rates on multiple properties can discourage hoarding. At the same time, boosting supply by streamlining legal processes, encouraging developer participation, and offering low-interest loans to low-income buyers is key.

Singapore’s model is a useful reference: low-income families can borrow at a fixed 2.5% interest rate, with the government covering the difference. This method respects institutional roles and economic principles while stimulating demand where it’s most needed.

The State Bank, as the central authority in monetary policy, should continue refining tools like risk-weighted assets (RWA), LTV, and debt-to-income (DTI) ratios to steer credit toward genuine housing needs and away from asset speculation.

Conclusion: Policy must align with reality

The proposal to tighten loans on second-home buyers may appear firm, but it is out of sync with legal authority and market mechanics. In a market economy, policies cannot be enforced by administrative orders - especially not in credit, where one misstep could distort the flow of capital throughout the entire financial system.

To truly cool down the housing market, the government must target real pain points: legal bottlenecks delaying project approvals, supply shortages, credit accessibility, and more. These challenges - and potential solutions - will be addressed in the next articles of this series.

Tu Giang - Lan Anh