What do you see from the message about real estate emergency credit?

Real estate lending accounts for more than 21% and counting?

At the beginning of the conference, the State Bank announced that credit for real estate was much higher than for other industries.

Accordingly, outstanding real estate credit by the end of 2022 reached about 2.58 million billion VND, an increase of 24.27% compared to the end of 2021, one of the highest growth sectors and accounting for 21.2% of total outstanding debt to the economy. Of which, real estate business loans alone increased by 11.5%, accounting for 31.28% of outstanding debt. The State Bank also affirmed that it has never tightened real estate loans, only tightly controlled them.

Those reported figures probably do not fully reflect reality because credit poured into real estate, from bank loans or other sources, is multifaceted and in many cases, not included in the reports.

Meanwhile, the monetary policy of fighting inflation, stabilizing the macro economy and supporting and promoting growth – two contradictory goals – has run out of room. Total deposit growth of the whole system at only 5.5-6% shows that the credit growth target of 16% last year is not feasible.

Besides, potential bad debt after several years of the pandemic; the SCB case; large fluctuations in interest rates and VND/USD exchange rates and especially rising inflation are hindering factors.

Against that backdrop, it is difficult to get any concrete message or commitment from monetary policymakers, even though all the businesses have made very specific, and somewhat dire, recommendations.

Concluding the Conference, State Bank Governor Nguyen Thi Hong only said: "Banks proactively control cash flow, promote lending to home buyers, collect debts from home sellers, and strengthen inspection of credit granting to businesses, corporations, and backyard projects. If credit is concentrated on backyard businesses with a large concentration level, it will be very risky."

The director of a real estate company in Hanoi said: Since the end of 2022, we have had to reduce production and business activities, postpone construction of a number of projects and works; and stop implementing new projects due to lack of capital. It is not only us who are having difficulties. When our projects are postponed, it is inevitable that suppliers of raw materials such as iron and steel, cement, bricks, furniture, household appliances, and electrical appliances will also face difficulties. The above situation is very common in real estate businesses today.

According to the Ministry of Construction, in 2022, nearly 1,200 real estate enterprises declared bankruptcy and dissolution, an increase of 38.7% over the same period last year. In addition to bankruptcy and dissolution, many real estate enterprises had to reduce the scale of investment in production and business, streamline their apparatus, and reduce their workforce. Some corporations reduced their workforce by up to 50% to cope with the current difficult conditions. This has a huge impact on the economy and social security issues. The main reason is lack of capital.

While real estate credit balances are still increasing, many real estate businesses are seriously lacking capital. What is the reason? According to economic experts, it is due to the mechanism.

“Bottleneck” mechanism

Capital flows into the real estate market come from many sources such as: Enterprises' own capital, capital advances from home buyers, capital issued by stocks, bonds, credit capital... Recently, capital pressure has been concentrated on bank credit, while other channels such as issuing corporate bonds and stocks have decreased sharply. Meanwhile, many real estate businesses have had to spend money to buy back bonds issued before maturity, making their cash flow even more difficult. Along with that, many individual customers are also facing difficulties, unable to borrow from banks, so they have temporarily stopped buying houses.

The bond market is currently almost frozen. Data from the Vietnam Bond Market Association shows that in January 2023, there were no corporate bond issuances. In December 2022, there were only 3 corporate bond issuances from securities and real estate companies, accounting for about 3% of the total issuance value.

View of Vinh city. Photo archive

A developed corporate bond market will reduce the burden on the banking system and play a very important role in supporting capital for economic development. However, the recent ups and downs of the corporate bond market have caused a loss of confidence and will make it difficult to develop sustainably in the long term. Since the third quarter of 2022, real estate businesses have continuously requested competent authorities to support them and quickly open up the corporate bond market to mobilize capital and resolve difficulties, but this has not been done yet.

The real estate market is still facing major legal problems. Currently, this market is subject to the regulation of about 15 Laws and sub-law documents, which are dozens of decrees, hundreds of circulars, and thousands of directive and administrative documents. This leads to overlaps and conflicts between regulations, causing project implementation to be prolonged, increasing costs and risks. According to statistics, in Ho Chi Minh City, there are currently more than 1,000 projects and in Hanoi, more than 300 projects are facing problems and cannot be constructed, making it difficult for businesses to mobilize capital.

Currently, legal problems are the biggest problem, accounting for 70% of difficulties of real estate and housing projects in the process of investment preparation, construction and business.

The main reason is that the legal regulations are not consistent and unified. In addition, the complicated and unsynchronized administrative procedures have prolonged the time to carry out procedures for real estate and commercial housing projects, taking about 3-5 years, etc. This is the "bottleneck" mechanism that needs to be resolved quickly, only then can we hope to help the real estate market overcome difficulties.