What can we learn from the message about emergency real estate credit?

Real estate lending accounts for over 21% and even more?

At the beginning of the conference, the State Bank of Vietnam released information stating that credit extended to the real estate sector was significantly higher than to other sectors.

Accordingly, outstanding real estate loans reached approximately VND 2.58 trillion by the end of 2022, an increase of 24.27% compared to the end of 2021. This is one of the fastest-growing sectors and accounts for 21.2% of total outstanding loans to the economy. Specifically, loans for real estate business alone increased by 11.5%, accounting for 31.28% of outstanding loans. The State Bank of Vietnam also affirmed that it has never tightened real estate lending, only tightened control.

Those reported figures may not fully reflect the reality because credit flowing into real estate, from bank loans or other sources, is incredibly diverse and, in many cases, not included in the reports.

Meanwhile, monetary policy, which simultaneously combats inflation, stabilizes the macroeconomy, and supports and promotes growth – two contradictory goals – has run out of room for maneuver. The fact that total system deposits grew by only 5.5-6% indicates that last year's 16% credit growth target was unattainable.

In addition, potential bad debts after several years of the pandemic; the SCB case; significant fluctuations in interest rates and the VND/USD exchange rate; and especially the rising inflation are all hindering factors.

Against that backdrop, it's difficult to make a specific message or commitment from monetary policymakers, even though all the businesses have put forward very specific, and somewhat pathetic, recommendations.

In her concluding remarks at the conference, the Governor of the State Bank of Vietnam, Ms. Nguyen Thi Hong, simply stated: "Banks should proactively and strictly control cash flow, boost lending to homebuyers, collect debts from homesellers, and strengthen kiểm tra the granting of credit to businesses, corporations, and 'backdoor' projects. If credit is concentrated heavily on 'backdoor' businesses, it will be very risky."

The director of a real estate company in Hanoi said: "Since the end of 2022, we have had to scale back production and business activities, suspend construction on some projects, and halt the implementation of new projects due to a lack of capital. And it's not just us facing difficulties. When our projects are suspended, it's inevitable that suppliers of raw materials such as steel, cement, bricks, furniture, household appliances, and electronics also face difficulties. This situation is very common among real estate businesses today."

According to data from the Ministry of Construction, in 2022, nearly 1,200 real estate businesses declared bankruptcy or dissolution, a 38.7% increase compared to the previous year. Besides bankruptcy and dissolution, many real estate businesses have had to scale back their investment and production, streamline their operations, and reduce their workforce. Some corporations have reduced their workforce by up to 50% to cope with the current difficult conditions. This has a significant impact on the economy and social welfare. The main reason is a lack of capital.

While real estate credit remains high, many real estate businesses are facing severe capital shortages. What is the reason for this? According to economic experts, it's due to the existing mechanisms.

"Bottleneck" in the mechanism

Capital flows into the real estate market come from various sources, including: companies' own capital, advance payments from homebuyers, capital from issuing stocks and bonds, and credit. Recently, pressure to obtain capital has been concentrated on bank credit, while other channels such as corporate bond and stock issuance have seen a sharp decline. Meanwhile, many real estate companies have had to use funds to repurchase bonds they had issued before maturity, further exacerbating their cash flow difficulties. In addition, many individual customers are also facing difficulties and are unable to obtain bank loans, thus temporarily suspending their home purchases.

The bond market is currently almost frozen. Data from the Vietnam Bond Market Association shows that there were no corporate bond issuances throughout January 2023. In December 2023, there were only three corporate bond issuances, coming from securities and real estate companies, accounting for approximately 3% of the total issuance value.

A view of Vinh city. (Archival photo)

A developed corporate bond market will reduce the burden on the banking system and play a crucial role in providing capital for economic development. However, the recent ups and downs in the corporate bond market have eroded confidence and will make long-term sustainable development difficult. Since the third quarter of 2022, real estate businesses have repeatedly requested support from authorities to quickly open up the corporate bond market to raise capital and resolve their difficulties, but this has yet to be implemented.

The real estate market is still facing significant legal obstacles. Currently, it is governed by approximately 15 laws and numerous sub-laws, including dozens of decrees, hundreds of circulars, and thousands of directives and regulations. This leads to overlapping and conflicting regulations, causing delays in project implementation, increased costs, and higher risks. Statistics show that in Ho Chi Minh City, over 1,000 projects and in Hanoi, over 300 projects are currently facing legal issues and cannot proceed with construction, making it difficult for businesses to raise capital.

Currently, legal obstacles are the biggest problem, accounting for 70% of the difficulties faced by real estate and housing projects during the investment preparation, construction, and business phases.

The main reason is the lack of uniformity and consistency in legal regulations. In addition, cumbersome and complex administrative procedures, lacking coordination, have prolonged the processing time for real estate and commercial housing projects, taking approximately 3-5 years. This is a key bottleneck in the mechanism that needs to be addressed quickly in order to help the real estate market overcome its difficulties.

Hai Linh