Land prices "dance", banks tighten lending
Real estate lending was once considered by many commercial banks as a “golden goose”. But now, with signs of strong capital flows into this sector as well as “land fever”, many banks have tightened their regulations.
Banks are hesitant
If a few years ago, real estate lending was focused on and heavily used by commercial banks, now, after a period of strong capital flows into this sector, many banks have begun to be more cautious.
A survey at a number of commercial banks shows that interest rates for loans for home purchase and construction renovation are quite high, ranging from 8.8%/year - 12%/year, an increase of about 2%/year compared to a few months ago.
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| Many banks are tightening real estate lending. |
At BIDV, the current interest rates for 6-month and 12-month home loans are 7.3%/year and 7.8%/year, respectively. The fixed interest rate for 24 months is 8.8%/year. After this period, the loan interest rate will be equal to the 24-month interest rate plus a margin of 3.5%/year, which, if calculated at the current interest rate, is about 10.7%/year.
For Techcombank, the home loan interest rate is higher, 7.49%/year and 7.99%/year for 6-month and 12-month loan terms respectively. If the customer borrows for 24 months, the interest rate is calculated at 8.79%/year. Meanwhile, Eximbank offers an interest rate that jumps up to 11% for 24-month and 36-month loan terms.
To limit capital investment in real estate, some banks have also introduced regulations that the more you borrow, the higher the interest rate. In addition, the maximum loan ratio has also been reduced by banks 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 has just increased the risk coefficient for real estate loans from 150% to 250%, and reduced the ratio of short-term capital used for medium and long-term loans from 60% to 45%.
According to Mr. Nguyen Hoang Minh, Deputy Director of the State Bank of Vietnam, Ho Chi Minh City Branch, to limit capital flow to real estate investment customers, in addition to surveying land prices, banks also reduce lending rates to the lowest level, about 50%, even 30% compared to market prices.
In the first half of 2018, the whole industry's credit increased by 6.16% but real estate loans only increased by 2.19%. Compared to the figure of 15.8% in 2017, the current proportion of loans in this sector is much lower, accounting for only 7.5% of the total outstanding debt of the economy.
Businesses have 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 amendments and supplements, the State Bank stipulates a roadmap to gradually reduce the maximum ratio of short-term capital used for medium- and long-term loans by credit institutions and foreign bank branches, which has had a major impact on the market.
Since the beginning of 2018, real estate businesses, investors and consumers in the market have had difficulty accessing capital as banks have gradually restricted credit to real estate. On the positive side, it has created pressure forcing real estate businesses to seek other additional sources of capital.
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The Chairman of the Ho Chi Minh City Real Estate Association said that banks are forced to restructure their capital sources for more sustainable savings mobilization towards increasing the rate of medium and long-term mobilization. In fact, banks have increased interest rates for term savings mobilization, especially for terms over 12 months, to meet the requirements of the circular.
Regarding the regulation that from January 1, 2019, credit institutions and foreign bank branches are allowed to use a maximum of 40% of short-term capital for medium- and long-term loans according to Circular 19/2017/TT-NHNN (amending and supplementing Article 17 of Circular 36), Mr. Chau said that it should not be applied at the beginning of 2019.
Because real estate businesses need medium and long-term capital to operate. In the first 8 months of this year, real estate debt in Ho Chi Minh City was 10.9%, higher than the average real estate debt in the country, only 7%. In addition, the real estate market has declined sharply in both supply and transactions in the first 9 months of the year.
According to Mr. Chau, besides that, there have been local virtual fevers in land prices, agricultural land, illegally divided land in some areas across the country, which have absorbed a large amount of credit capital and social capital, negatively affecting the market. Up to now, the virtual fever of land prices has been controlled but the negative consequences still need to be overcome.
