Thursday, February 18, 2016

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Tightened credit expected to stop real estate bubble

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Loans pouring into the real estate sector are expected to be tightened given that the sector is said to be experiencing robust growth.

A view of Linh Dam New Urban Area. Loans pouring into the real estate sector are expected to be tightened. - VNS Photo Doan Tung
In a draft document issued by the State Bank of Viet Nam circulated for the opinion of financial institutions, the risk index of receivable lending for real estate and securities might be raised from 150 per cent (the lowest level) as stipulated in Circular No 36, to 250 per cent.
Maximum ratio of short-term funds used for medium and long term loans might be adjusted from 60 per cent to 40 per cent.
The Ministry of Construction's Department of Housing and Real Estate Market Management reported that as of November 2015, outstanding loans invested in the market was up to VND375 trillion (US$16.67 billion), a surge of 20 per cent compared to the figure of December 2014. This is the result of the Circular No 36 which was in effect from February 1, 2015.
Three activities which have the highest rate of increase in loans are, buying the right to use land with 36.3 per cent, building new urban areas with 10.7 per cent, and investing in other real estate businesses at 11.2 per cent.
The proposed amendments imply the central bank's concern about the overheating of the real estate sector, according to a report of the Ho Chi Minh City Securities Company.
The new rules, if applied, would have a negative impact on developers such as Novaland, Vingroup, Dat Xanh, and Nam Long as well as their customers, it said.
Lenders that are major players in the mortgage market, such as ACB, Sacombank and Techcombank, would also be affected, it said.
This change would not affect families and individuals who buy houses to live under the scheme of pay-by-instalment.
Previously, experts also raised concerns over the real estate "bubble" which might occur in the future if the lending for property investments was not controlled.
Expert Nguyen Tri Hieu told news website that the warm-up of the real estate market could help deal with bad debts, but in fact, the market was still facing difficulties as the volume of inventories was still high.
Therefore, commercial banks should not only speed up the lending, but also need to strictly supervise the quality of loans as well as the sources of debt servicing, he said.
It is the time for the central bank to tighten credit in the real estate market, he stressed, while adding that property businesses should prepare financial resources themselves to avoid over-reliance on the banking system.

Kevin Vu -

Kevin Vu

Author & Editor

A professional Real Estate Agent in Vietnam.

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