SBV moves to reassure property investors

State Bank of Viet Nam's (SBV's) newly amended regulations on prudential ratios for the operation of credit institutions and foreign bank branches have provided significant relief to real estate investors.

The policies are expected to help the market develop more sustainably as well.

Since the circulation of the draft amendments to attract the opinions of the public earlier this year, property investors have raised concerns that they would immediately face a credit tightening from commercial banks even though they are heavily reliant on loans from these banks as sources of capital.

The draft stated that the risk index of receivable lending for real estate will be raised from 150 per cent to 250 per cent, and the ratio cap for using short-term funds to provide medium- and long-term loans will be 40 per cent, down from the 60 per cent stated in the old document, Circular No 36, released two years ago.

However, under the SBV's new Circular No 06 issued in late May, the risk index will be adjusted to 200 per cent, instead of 250 per cent as proposed, and the increase will only come into effect on January 1, 2017.

In addition, the central bank's decision surprised investors by specifying a roadmap for the maximum ratio of short-term funds used for medium and long-term loans to be reduced from 60 per cent to 40 per cent.

Accordingly, the 60 per cent ratio will be maintained until December 31 of this year. The ratio will be lowered to 50 per cent from January 1, 2017, to December 31, 2017. It will drop to 40 per cent from the beginning of 2018.

Deputy General Director of Him Lam Land Ngo Quang Phuc said the new circular had great significance for the real estate market.

The policy's first priority was to reassure property developers that the capital source for the market would not be tightened immediately, he said.

He added that with the roadmap, investors will have time to look back at their usage of capital and prepare for long-term plans.

In addition, the amendments helped keep the interest rates stable at low levels, which would encourage people to buy houses, Phuc said.

General director of Hung Thinh Land Company Nguyen Nam Hien said that in reality, after the draft amendments were publicised, some banks had increased the interest rates of deposits to prepare for the changes, thus causing the lending rate to rise.

But now that the new regulations have been finalised, it is expected that the lending rates will drop to assist home buyers who also had to borrow from banks, thereby consolidating property developers' confidence in their investment activities.

Nguyen Ba Sang, chairman and general director of the An Gia Real Estate Company, applauded the SBV's decision, saying the newly issued regulations would help avoid shocks to the market, which was on track for recovery, as well as prevent the risk of "bubble" growth.

Sang said the property market currently depends largely on two capital sources, bank loans and capital mobilised from customers, noting that most customers often seek loans from banks, thus the market is very sensitive and vulnerable to changes in the credit system.

He expected that in seeing the regulation changes, property investors would find ways to improve their own financial capacity to reduce their reliance on banks as sources of funding, as they are inherently risky in terms of interest rates and liquidity.

Market selection

Nguyen Quoc Hiep, chairman of the Global Petroleum Investment Corporation, said the SBV had lowered the risk index requirement from 250 per cent to 200 per cent, indicating that the agency did not want to place hard pressure on the real estate sector.

The rate is enough to warn commercial banks to refrain from excessive lending, and it warns property developers as well, Hiep said.

He added that currently, Circular No 06 had not made much of an impact on the real estate market, but by the end of the year, the policy's effects would be seen more clearly.

According to Hiep, projects that were underway or nearing completion would not be affected by the policy, but new projects or those currently in the early stages will face greater difficulty in mobilising capital, so they will face a higher risk level.

Vu Cuong Quyet, director of Dat Xanh North – a subsidiary of Dat Xanh Group, said the circular would not have a negative impact on ongoing projects where capital flows are already controlled and guaranteed by banks.

However, small enterprises with poor financial capacity will likely be affected the most as once the new regulations come into effect, banks will be more cautious and set stricter criteria for lending, Quyet said.

Lai Van Tu, deputy director of the Phuc Ha Industrial Zone Infrastructure Development and Investment JSC, the developer of the Thang Long Victory project, said the SBV had provided a timely warning.

At present, the property market is facing an imbalance in the supply of high-end projects and houses for low-income people, Tu said, so if enterprises were not forced to adjust their strategies, the market would face the risk of oversupply in the high-end segment.

Tu also said if banks were too rigid in tightening their credit, capital sources for building cheap houses would become exhausted, so the chances for low-income people to own a house would drop.

Therefore, he suggested banks should be more flexible in considering and screening projects, particularly those in the low-end segment because of its high liquidity.