Real estate businesses are showing concern about the risk that credit flow into real estate will be tightened by the recent Draft Amendment to Circular 36 in the context of the real estate market that has just heated up in the past 2 years.

The State Bank is drafting an amendment to Circular 36/2014/TT-NHNN, which plans to sharply reduce the ceiling on the use of short-term capital for medium- and long-term loans from the current 60% to 40% and increase the risk coefficient of real estate receivables from 150% to 250%.

The main content of this document shows the message that there will be a possibility of tighter control of real estate business loans. Because in the past year, the credit growth rate was quite "hot" in the real estate sector. However, the application period has not been determined yet.

What will happen to the real estate market when credit is tightened?

Strong impact on the real estate market

According to the assessment of the Vietnam Real Estate Association (VNREA), if Circular 36 is adjusted, it will have a negative impact on the Vietnamese real estate market, adversely affect many other related markets and negatively affect the entire economy. Therefore, amending Circular 36 at the present stage is not necessary.

"The real estate market is currently developing in a good, sustainable direction and is making a positive contribution to the overall development of the economy. From there, it spreads to many other sectors such as the labor market, capital market, construction market, construction materials production industry, transportation... Thus, maintaining the sustainable development of the real estate market has a positive supporting impact on the implementation of the socio-economic goals of the whole country", the Association assessed.

Meanwhile, the demand for housing in Vietnam, especially in large cities and rural areas, is still very high. Projects have just been revived, and in many localities the real estate market is still facing many difficulties. Therefore, tightening credit will be counterproductive to recent efforts to restore the market.

"In the previous period, we had some lessons about adjusting credit policies for the real estate market, which caused many negative impacts on the economy. This adjustment will make domestic and foreign businesses, investors and people lose confidence in the stability of macro policies for the market in Vietnam. This will increase the amount of goods in stock, increase unfinished projects, and create more difficulties for real estate businesses," VNREA emphasized.

According to Mr. Tran Anh Hung - Lawyer of BROSS & PARTNERS, "The capital potential of real estate businesses is still limited, and not many businesses can be self-sufficient in capital. Most businesses depend on bank credit capital and capital mobilized from partners and customers (in the form of business cooperation contracts, future housing purchase contracts, etc.). Meanwhile, mobilizing capital from other sources for the real estate market such as investment funds, real estate trust funds, housing savings funds, or capital from the stock market, etc. is still not the main capital mobilization channel and is quite difficult. Therefore, when lacking capital, both businesses and home buyers have to borrow capital from banks. Therefore, it can be seen that currently, businesses and people are heavily dependent on capital loans from banks."

In addition, when banks tighten lending, both businesses and home buyers will be affected. However, the most severely affected are businesses with low capital autonomy, dependent on bank credit sources, and are starting to implement projects. These businesses will face the risk of capital shortage, affecting the progress of project implementation.

Will the real estate market freeze?

Mr. Nguyen Vu Cao, Chairman of the Board of Directors of Hoang Gia Group Company, feels worried: “If banks tighten credit, it will clearly affect the real estate market. And it will cause a series of market problems, and can even cause stagnation of the entire economy, not just real estate. Because real estate is a link in the Vietnamese economy. That economic chain, when one link has a problem, will create an affected machine. The biggest loss here is the investor, the second is the consumer, and the third is related to the general problem of the country."

According to Mr. Cao, this could affect both taxes and GDP. And it is predicted that in 2016, investors will “die” because their products are not suitable for the market, so banks will not lend to ensure capital flow.

Mr. Tran Anh Hung further explained whether tightening credit capital can freeze real estate or not: "When banks tighten capital sources, it will cause great difficulties for real estate businesses, as well as negatively impact the real estate market. However, the extent of the impact depends on many factors such as: the ability to adapt and adjust of real estate businesses, the implementation of policies and strategies to stabilize and develop the market from the state, as well as how other capital flows into the real estate market, etc. Therefore, in my opinion, it is too early to confirm that the real estate market will freeze when the State Bank amends Circular 36/2014/TT-NHNN, in the direction of tightening credit capital into the real estate market."

According to banks, the real estate market is not yet at the risk of a bubble, but real estate inventory has decreased and the State Bank has issued a warning to avoid a new bubble in the market. Investors must also consider avoiding massive investments and pouring capital into large projects because they will face difficulties when the market adjusts.

According to Vietnamnet