Need fundamental solutions to overcome difficulties in real estate credit

Real estate businesses under pressure from loans

In 4 consecutive days, from December 12-15, 2022, the Prime Minister signed 4 dispatches: Dispatch to promote the resolution of credit problems; Dispatch to resolve corporate bond issues; Dispatch to remove difficulties in the real estate market and Dispatch to direct the resolution of labor issues. The Government has established a Working Group to remove difficulties in the real estate market with the participation of ministries and branches.

Recently, the Real Estate Credit Conference organized by the State Bank has attracted the attention of many large real estate enterprises and associations with many recommendations to support and remove difficulties for the market. Many opinions said that it is necessary to keep the debt group unchanged; there should not be a distinction in risk coefficients; the collateral ratio should not be higher than other sectors; there should be separate credit guidelines for urban development; there should be a capital mechanism for social housing; there should be separate mechanisms and policies for industrial park real estate development; there should be an interest rate support package similar to the 30,000 billion VND package in 2013...

Real estate businesses ask for debt restructuring and interest rate reduction to access bank credit. In photo: A real estate project in Ha Huy Tap ward, Vinh city. Photo: Thu Huyen

In Nghe An, Mr. Nguyen Dinh Dung - Chairman of the Board of Directors of Kim Thi Real Estate Joint Stock Company said: The company is investing in building a social housing area for workers and laborers working in industrial parks in the Southeast Economic Zone in Nghi Xa commune, Nghi Loc district with a land area of ​​nearly 34,000 m2, a total investment of 320 billion VND and is also facing difficulties in capital. The real estate sector, especially social housing, has not yet accessed any preferential capital sources, so not lowering the price affects the price of apartments. Commercial banks are not interested in lending to businesses with preferential packages because the conditions are too strict. After lending, if they want to receive interest rate support from the State according to regulations, they have to go through many complicated procedures... High lending interest rates and difficulty in accessing capital from banks. Collateral requirements are too high,...

The government said that real estate and social housing construction are prioritized, but we cannot access capital, commercial banks say there is no room. With the housing project being implemented in Nghi Loc district, businesses need to borrow more than 120 billion VND, but it is difficult to borrow medium and long-term commercial loans, so they have to borrow short-term consumer loans with interest rates higher than 11%. Borrowing for business investment but having to borrow short-term, when the deadline comes, it is very difficult to change the contract. It is recommended that there should be clear and transparent policies with incentive packages, especially for social housing. Credit interest rates need to balance costs to minimize lending interest rates; need to be more flexible about collateral, ...

Mr. Nguyen Dinh Dung - Chairman of the Board of Directors of Kim Thi Real Estate Joint Stock Company

Sharing with us, some real estate investors believe that, to overcome the current difficulties of the market, banks need to lower interest rates for both deposits and loans. A representative of Fuji Real Estate in the Central region said that, in fact, although savings interest rates have decreased compared to the time before Tet, they are still more attractive than many other investment channels, so money flows into banks. Only when savings interest rates are no longer attractive, many people will consider investing in real estate. At the same time, banks should also lower lending interest rates to overcome difficulties for both investors and buyers.

Real estate businesses and home buyers are both having difficulty accessing credit. Photo: Thu Huyen

Currently, many banks are still mobilizing at interest rates above 10%, lending at 12%, even 16%/year. Under pressure from bank interest rates, many small investors have had to sell at a loss to push their goods to pay off debts.

Mr. Cao Song Diep - Head of General Department, State Bank of Vietnam, Nghe An branch, said that capital for real estate comes from many channels: equity capital, bank loans, public investment, bond issuance investment... However, equity capital is invested in a spread, there are businesses that have lost capacity; capital from the stock market, from bonds, from the third quarter of 2022, these channels are facing difficulties and instability... Meanwhile, the real estate market is frozen, unable to recover capital, causing many businesses to have no capital for new projects and projects in progress. All of these difficulties are putting pressure on bank loans.

To ease the difficulties for both investors and buyers, it is necessary to lower interest rates on deposits and loans. Photo: Thu Huyen

What does the bank say?

Nghe An is always in the top of the country in terms of capital mobilization and outstanding loans. At the end of 2021, Nghe An was the leading province in the North Central region in terms of capital mobilization and outstanding loans; ranked 6th in the country in terms of capital mobilization and ranked 4th in terms of outstanding loans.

According to a report by the State Bank of Vietnam, Nghe An branch, by early February 2023, the total outstanding debt of credit institutions in the area was estimated at VND 263,129 billion, an increase of VND 2,605 billion compared to the beginning of the year, equal to 1% (the growth rate in 2022 is 2.2%). Of which, medium and long-term outstanding debt is estimated to account for 41.24% of the total outstanding debt.

Outstanding loans of some credit programs as of January 31: Loans for agriculture, rural areas and rural areas in the whole area are estimated at 124,867 billion VND, accounting for 45.6% of outstanding loans in the whole area; Loans for high-tech agricultural development and clean agriculture according to Resolution 30/NQ-CP are estimated at 20,126 billion VND, accounting for 7.3% of total outstanding loans in the whole area; Export loans are estimated at 3,150 billion VND, an increase of 0.8% compared to the beginning of the year; Housing support loans according to Resolution 02/NQ-CP dated January 7, 2013 of the Government are estimated at 150 billion VND; Shipbuilding loans according to Decree 67/2014/ND-CP are estimated at 183 billion VND.

State-owned commercial banks always have stable deposit and lending interest rates, lower than the market. Photo: Thu Huyen

In the real estate sector alone, outstanding loans are low. As of December 31, 2022, loans reached VND 21,955.6 billion, accounting for 8.1% of total outstanding loans. At banks, especially the four big banks BIDV, Vietcombank, Vietinbank, Agribank, the outstanding loan ratio for real estate is generally very low, mainly lending to individuals to buy houses, repair houses... For example, outstanding loans of Viettinbank Nghe An branch currently reach over VND 11,000 billion, but real estate loans only account for 3-4% of total outstanding loans; or outstanding loans of BIDV Nghe An branch reach VND 22,000 billion, but real estate loans are only VND 1,000 billion.

Sharing the joint effort to rescue the real estate market, the leaders of the State Bank as well as the banks in the area affirmed that the State Bank has not issued any documents or statements on tightening real estate credit; but has directed strict control of credit for some risky segments such as segments with high speculative rates, etc. to ensure system safety. As for credit serving legitimate purposes of home buyers, it is guaranteed to be fair like other areas. However, buyers who want to borrow must also prove their ability to repay and buy projects with good liquidity; the loan money must be collected, ensuring the safety of capital sources.

Real estate loans of banks in Nghe An only account for 8.1% of total outstanding loans. In the photo: A corner of Vinh city. Photo: Thu Huyen

Mr. Tran Hoai Nam - Director of Vietinbank Nghe An branch said: The issue of safety and efficiency in lending activities is always put first. We are always ready to lend to individuals, project investors with clear legal status, qualified, good investor capacity, good output market. Mobilization interest rates are decreasing, which is a condition for lending to decrease, hopefully the market will be better in the future.

Sharing the same opinion on the legality of the project, Mr. Tran Minh Tinh - Director of the Joint Stock Commercial Bank for Investment and Development (BIDV) Nghe An branch shared that the most worrying thing is the legality of the project. The purchase and sale of individual land is basically clear, but with projects, legal problems are quite common nowadays. "We are ready to receive and handle requests with customers ensuring sufficient conditions; projects with legal status and reputable investors will be disbursed" - Mr. Tinh said.

The leader of the State Bank of Vietnam, Nghe An branch, also said that in 2023, it will focus on controlling reasonable credit growth to contribute to controlling inflation, supporting economic growth, directing credit capital to production and business sectors, especially priority sectors and growth drivers according to the Government's policy; strictly controlling credit for potentially risky sectors.

Thus, the story of solving credit difficulties for real estate is a difficult problem; although banks do not intend to tighten credit, in reality they must be cautious to avoid risks when lending. Projects do not guarantee legality and collateral, of course banks cannot disburse capital. Many experts also believe that the current priority is to stabilize the macro economy, control interest rates, exchange rates and prices of essential goods as well as support and create conditions for production and business enterprises to use a lot of labor and provide goods and services to meet the real needs of the economy. The real estate economy is an important part of the economy, directly and indirectly affecting many production and service industries. Therefore, stabilizing the macro economy, developing healthily and sustainably, based on the foundation of capacity and productivity will be the fundamental solution to rescue real estate today.