Land prices are fluctuating wildly, and banks are tightening lending.
Real estate lending was once considered a "golden goose" by many commercial banks. However, with signs of a strong influx of capital into this sector and the ongoing real estate boom, many banks have tightened their lending policies.
The bank is hesitant.
While a few years ago commercial banks focused heavily on and aggressively offered real estate loans, now, after a period of strong capital inflows into this sector, many banks have begun to be more cautious.
Surveys at several commercial banks show that interest rates for home purchase and renovation loans are quite high, ranging from 8.8% to 12% per year, an increase of about 2% per year compared to a few months ago.
 |
| Many banks are tightening lending for real estate. |
At BIDV, the current interest rates for home loans with terms of 6 months and 12 months are 7.3%/year and 7.8%/year respectively. The fixed interest rate for 24 months is 8.8%/year. After this period, the lending interest rate will be equal to the 24-month term interest rate plus a margin of 3.5%/year, which, based on current rates, is approximately 10.7%/year.
For Techcombank, the interest rate for home loans is higher, at 7.49%/year and 7.99%/year for loan terms of 6 months and 12 months, respectively. If the loan term is 24 months, the interest rate is calculated at 8.79%/year. Meanwhile, Eximbank offers a higher interest rate of 11% for loan terms of 24 months and 36 months.
To curb speculative real estate investment, some banks have introduced regulations stipulating that the more you borrow, the higher the interest rate. In addition, the maximum loan-to-value ratio has been lowered to 70% of the property value.
In order to tighten the flow of medium and long-term capital into the real estate sector, the State Bank of Vietnam has increased the risk coefficient for real estate loans from 150% to 250%, and lowered the ratio of short-term capital used for medium and long-term lending from 60% to 45%.
According to Mr. Nguyen Hoang Minh, Deputy Director of the State Bank of Vietnam's Ho Chi Minh City branch, to limit capital flows to real estate investors, in addition to surveying land prices, banks are also reducing loan-to-value ratios to the lowest level, around 50%, or even 30%, of market value.
In the first half of 2018, total credit in the sector increased by 6.16%, but real estate lending only increased by 2.19%. Compared to the 15.8% figure in 2017, the proportion of lending to this sector is now much lower, accounting for only 7.5% of the total outstanding loans in the economy.
Are businesses having difficulty accessing capital?
According to Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association, Circular 36/2014/TT-NHNN dated November 20, 2014 (Circular 36) and its amending and supplementing circulars, which stipulate a roadmap for gradually reducing the maximum ratio of short-term capital used for medium and long-term lending by credit institutions and branches of foreign banks, have had a significant impact on the market.
Since the beginning of 2018, real estate businesses, investors, and consumers have faced difficulties accessing capital due to banks gradually restricting credit to the real estate sector. On the positive side, this has created pressure on real estate businesses to seek other sources of funding.
 |
| Illustrative image |
The Chairman of the Ho Chi Minh City Real Estate Association stated that banks are forced to restructure their savings mobilization sources to be more sustainable, focusing on increasing the proportion of medium and long-term deposits. In fact, banks have increased interest rates on term deposits, especially those over 12 months, to meet the requirements of the circular.
Regarding the regulation effective from January 1, 2019, which allows credit institutions and branches of foreign banks to use a maximum of 40% of short-term capital for medium and long-term lending according to Circular 19/2017/TT-NHNN (amending and supplementing Article 17 of Circular 36), Mr. Chau believes that it should not be applied at the beginning of 2019.
Real estate businesses require medium and long-term capital for their operations. In the first eight months of this year, real estate loans in Ho Chi Minh City increased by 10.9%, higher than the national average of only 7%. Furthermore, the real estate market experienced a sharp decline in both supply and transactions during the first nine months of the year.
According to Mr. Chau, in addition, there have been localized speculative price surges in land plots, agricultural land, and illegally subdivided land in some areas across the country, which have absorbed a significant amount of credit and social capital, negatively impacting the market. To date, the speculative land price surge has been brought under control, but the negative consequences still need to be addressed.
