Investors and buyers play waiting game in credit switch

The State Bank of Vietnam finally created extra credit room for some banks on September 7. However, the extension is deemed low and may not help real estate businesses and homebuyers access feasible capital sources for their projects.

 

Earlier this month, the State Bank of Vietnam (SBV) adjusted the credit growth target in 2022 for some institutions that had requested such a move. The adjustment of credit limit is based on the assessment of the operation of credit institutions and must also contribute to controlling inflation and stabilising the currency market.

Among banks with increased credit room, Sacombank was offered 4 per cent, Agribank 3.5 per cent, Maritime Bank at 3.2 per cent, Vietcombank with 2.7 per cent, and TPBank offered 1.2 per cent.

The SBV said that the opening of the credit room is to facilitate the implementation of a 2 per cent interest rate support package as well as to meet the capital needs for socioeconomic development and restoration of production and business.

Needing a loan worth about $43,000 from a bank to buy a house, Nhu Quang from the south-central province of Binh Thuan told VIR that, after learning that the banks were to extend credit, he contacted his target commercial bank. He had been trying for months to apply for a loan. “The bank said I still have to wait longer because detailed instructions have not been released yet,” Quang said.

Similarly, Tran Thi Thanh from Ho Chi Minh City’s Thu Duc city said that her family has bought a unit for over $100,000 and has completed procedures for a bank loan of 60 per cent of the value of the unit. Previously, some banks did not accept loans because they said they were out of credit room. Last week, Thanh returned to those banks, but the bank still refused.

“The bank said their credit growth and disbursement remain under the control of the SBV and consumers like us who want to buy a house still cannot get a loan,” said Thanh.

Representatives from some banks commented that the extension is actually the SBV’s redistribution of credit growth limit in the remaining percentage of this year’s target of 14 per cent. However, banks have been waiting for this for several months. Immediately after the information was released, many banks were speeding up their consideration for previous loan applications.

Vibrant market

According to Hoang Van, an independent real estate expert, real estate prices have been pushed up to a very high level in recent times. This forces buyers to wait and see, expecting a reducing wave. In addition, the deposit interest rate and lending interest rate of banks are also increasing sharply, worrying potential investors and buyers.

“Therefore, it is unlikely that the real estate market will be active immediately after the credit room loosening is in effect. Instead, the real estate market will develop in a more substantive and sustainable way. Capital will flow into real estate segments with real needs and meeting the expectations of homebuyers,” Van said.

Real estate projects of good quality and developed by reputable developers and affordable for customers may still have good growth potential. However, according to Nguyen Hung, an individual investor in Ho Chi Minh City, this is simply an emotional factor of investors in the market.

“The policy from the government needs a while before being put into operation. The extension of the credit room was applied to only a few banks, so it cannot help businesses and people in new credit sources,” Hung explained. “Moreover, this room extension is not only for real estate but also for other industries, so the impact on the market is not substantial.”

Insiders and experts insisted, however, that some good will come from the move. Dr. Le Xuan Nghia, former vice chairman of the National Financial Supervision Commission, assessed that loosening credit at this time was a wise decision. “Maintaining the stability of monetary policy is the most appropriate move of the executive agency in this period,” Nghia said.

Experts from SSI Securities also said that credit loosening can help enterprise owners have more capital to pay debts and mature bonds, especially small- and medium-sized enterprises. Meanwhile, large enterprises that still have collateral for bank loans will be eligible to issue new bonds as well as borrow international bonds.

Vu Kim Giang, general director at Hai Phat Land, said that the expansion of the credit room, although indirectly, will also have a very positive impact on the cash flow of real estate businesses and create room for the market to redevelopment.

“The real estate market is expected to warm up again in the last months of the year when credit flows open and businesses free up inventories,” said Giang.

Proactive need

Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association, explained that the potential for capital inflow in the short term is not too large, with the main reason being that the banking sector has spent too much capital on real estate in recent times.

“The current expansion of the credit may only be a psychological impact to help the real estate market recover a bit, but it is not enough to help the market to accelerate. The low credit limit will not be enough to meet the stockpile of loan applications, making it difficult to revive the quiet market,” said Chau.

To create more conditions for the real estate market to develop actively, Can Van Luc, a member of the National Monetary Policy Advisory Council, said that in the context of macroeconomic stability and inflation control, the SBV can completely expand the credit room for the whole of 2022 by 1-2 per cent more. This means increasing from the target level of 14 per cent to 15-16 per cent.

“Doing this will have a stronger and more substantive impact on the real estate market, especially in the context that the market has been facing difficulties in terms of capital from the beginning of 2022, and the end of the year is also the peak time for the real estate market,” Luc said.

He added that if the capital source is not cleared soon, businesses will continue to face difficulties in project implementation, and customers will also have difficulty accessing home loans.

“As a result, the real estate market is illiquid, and mutual debts of businesses and bad debts of banks will increase. This is extremely dangerous, not only for the real estate market but also for the economy as a whole,” he added.

To solve the problem of capital for the current real estate market, Luc said that the most important issue for real estate businesses right now is to diversify their capital sources.

“In addition to the three main sources of mobilisation – bank credit, corporate bonds, and homebuyers – real estate businesses need to be flexible in mobilising from other channels such as private placement for strategic shareholders, offering shares to the public and existing shareholders, from investment funds, and other financial institutions,” he added.

Besides diversifying capital sources, businesses also need to improve themselves towards transparency in completing credit records and securities documents, implementing commitments, and strengthening risk management to cope with interest rate and exchange rate risks that may arise, Luc said.

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