Cash burden alleviation now called for

February 16, 2023 | 19:00

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The domestic real estate market is starting to recover, but it would benefit from more governmental assistance, such as softer bank loans and credit.

At the Real Estate Credit Conference hosted by the State Bank of Vietnam (SBV) last week, Le Trong Khuong, vice chairman of Hung Thinh Group said bonds are an excellent source of cash for companies. “Nonetheless, this mobilisation route is now blocked. Bondholders are concerned about the real estate developer’s viability, growth, and ability to reach customers,” Khuong said.

Thanh Hung, a resort real estate broker, said one project is in Dong Nai province is stuck. “My client is trapped, but I also warn him that the investor has not paid the broker’s fee. The investor proposed paying with real estate, but a simple calculation proved that the broker would lose considerable money, so he took the loss,” Hung said.

Other real estate projects from FLC, Tan Hoang Minh, and Van Thinh Phat have been suspended in recent times and the land was reclaimed.

Nguyen Tung Anh, head of Credit Risk Research at FiinRatings said, “Bondholders need early buybacks, which strain the liquidity of real estate developers. In addition, legal procedures in the real estate market and issues with planning permission create delays for projects that cannot be made available for sale or generate greater cash flow.”

Pham Thieu Hoa, chairman of Vinhomes’ Board of Directors, commented on the company’s difficulties, “Real estate is exposed to a high risk coefficient of up to 200 per cent compared to conventional economic operations. Investors and consumers would be affected by the higher loan rates than in other sectors,” he said.

International investors who have entered Vietnam are nearly entirely inactive and in a holding pattern. In addition, high interest rates have an impact on the prices of newly introduced items.

Meanwhile, according to general director of Vietcombank Nguyen Thanh Tung, the objective of banks when engaging with companies is to create mutually beneficial relationships. “Commercial banks strive not to increase interest rates and attempt to implement the SBV’s directive to cut deposit rates, consequently decreasing lending interest rates to support the market and bolstering banks.”

However, in order to fund medium- and long-term capital, the capital market must be engaged in addition to the banking system. “Lately, corporate bonds have played a significant role, but owing to several challenges, the whole medium- and long-term capital demand has fallen severely on the banking system, producing difficulties for banks,” he said.

Nguyen Hung, general director of TPBank, said that the financial institution has operational efficiencies and rivalries with other banks but does not wish to anchor excessive interest rates. “However, objective variables such as global interest rates and inflation are quite high. The US dollar interest rate has risen by 3-4 per cent and has not yet hit its peak,” said Hung.

Chairman of the Ho Chi Minh City Real Estate Association, Le Hoang Chau, said, “Real estate enterprises do not fear the lending interest rates of commercial banks. We do not offer to minimise fees, and we do not offer to cut interest rates. Homebuyers are responsible for these costs since real estate companies include them in the asking price. Restructuring debt while preserving the debt group is now the most challenging aspect for real estate enterprises.”

According to Nguyen Hoang Dung, deputy general director of VietinBank, real estate companies must vigorously sell assets in order to self-structure. “Debt restructuring for real estate companies is inappropriate since this is a market issue. If there is a special system for real estate, other industry groups would want a debt structure as well, which would violate the idea of industry equality.”

“I encourage businesses to invest in their companies, big or small, especially those who have to borrow heavily,” SBV Governor Nguyen Thi Hong added. “Businesses need to have strategies to encourage and re-administer having the financial capacity and capability to repay borrowed funds, while also being able to time-wise enhance their financial capacity, diversify their sources of capital mobilisation, and minimise their dependency on bank credit.”

The government has implemented a number of initiatives to help real estate businesses, such as Decision No.1435/QD-TTg to reduce impediments to the market.

Last December, the SBV also adopted a policy to relax the credit room from 1.5 to 2 per cent. The following month, it established the credit orientation to rise by around 14-15 per cent.

Nguyen Thi Hong - Governor State Bank of Vietnam

Money for the real estate market is derived from a variety of sources; thus, real estate developers must candidly identify problems with other sources of capital in order to devise remedies. Complementing commercial banks, the SBV, and ministries, branches, and localities, businesses must have their own solutions.

Enterprises propose avoiding high-risk real estate credit, but it is important to note that the SBV regulates risk in the real estate sector similarly to how it handles term risk. Real estate credit often has a long duration and a considerable quantity of money, but bank deposits are mostly short-term; if not carefully managed, it will be difficult for individuals to pay when they come to withdraw funds.

The restrictions pertaining to the risk coefficient and the ratio of short-term capital to medium- and long-term loans are all geared at minimising risks to the system’s liquidity and solvency. Therefore, the SBV has no documentation pertaining to the loosening or tightening of real estate credit, and the granting of credit to firms and individuals in the area of real estate is solely the responsibility of credit institutions.

Recent bank credit pressure is not the result of poor credit management, but rather of challenges in the corporate bond market. Specifically, the SBV said that many companies issue corporate bonds to develop real estate, but chose easy issuance terms and do not manage cash flow efficiently, so they are inactive when anything bad happens.

Businesses must have a rational product structure, use capital effectively, explore lowering real estate prices for sale, and have cash flow. All banks will continue to support real estate firms based on rigorous compliance with the terms of the law and control of risks, therefore guaranteeing the solvency of depositors.

Luu Trung Thai - Chairman, MB

The stability of banks, particularly MB, is heavily reliant on its customers. During this painful time, we must assist one another. Currently, real estate enterprises are experiencing difficulties since they have large-scale projects but are unable to finance them.

Due to the nature of financial challenges, such as when issuing corporate bonds, real estate developers choose the alternative with the fewest restrictions, such as issuing short-term bonds for projects lasting 5-10 years or selecting loans with lenient terms. Therefore, neither managing financial flow nor prioritising legal improvement is conceivable. The key to this dilemma is that it is simple at first but becomes challenging later on.

There is a mismatch in the market’s supply. The number of available homes in Ho Chi Minh City decreased dramatically from 40,000 to 10,000. In the meantime, the bulk of individuals in this region have a significant housing need. However, 80 per cent of the supply consists of high-end items, making it inaccessible to the majority of people even though banks must service them. The framework of the real estate sector is inefficient, and resolving this problem is challenging, but we must examine the issue.

For banks and real estate enterprises to take a further step in the collaboration process, the parties must agree on certain requirements.

Nguyen Thanh Tung - CEO, Vietcombank

At the end of 2022, approximately 20 per cent of Vietcombank’s outstanding loans were real estate loans. Comparing the end of 2021 to the end of 2022, the increase in real estate credit is around 17 per cent. This indicates that Vietcombank has quickly and completely addressed the credit demands of the real estate industry.

Vietcombank plans to continue expanding lending in the real estate industry in 2023, with a distinct method for each area. Real estate in industrial zones and export processing zones, for instance, is an essential area that actively contributes to the country’s socioeconomic growth by luring foreign capital. Accordingly, Vietcombank has prioritised expanding credit by fourfold in 2022 compared to 2021, and it is anticipated that 2023 will see a similar or greater growth rate than 2022.

Regarding ecotourism real estate, Vietcombank expects that domestic and international tourism has recovered, and therefore there will be policy adjustments in 2023 that reflect the new reality. To guarantee successful lending, we will pick renowned real estate businesses. In 2023, office real estate and commercial centres will also place a strong emphasis on loans.

For residential real estate, two items will be created. Vietcombank has affordable interest rate policies for reputed project developers with transparent financing. For individual homebuyers, we will prioritise and be more careful with the high-value market sector.

Nguyen Hung - CEO, TPBank

There is no longer a credit shortage; there is an abundance of money in the bank, and there is no limit for any sector. Lending on real estate will depend on each bank’s individual risk tolerance, but purchasers are exhibiting prudence. As a result of limited demand, home prices are decreasing, and purchasers are hunting for a bottom.

Typically, following the Lunar New Year, people refrain from borrowing and assume that real estate credit loans will be scarce at the start of the year. However, credit in general and real estate credit in particular will be quiet during this time.

Real estate is a distinct sector, and collateral is a physical asset. But this is also a limited resource, so for a long time real estate tends to rise. There is a period of hibernation and stagnation, but eventually it will grow and become liquid.

Consequently, solutions to help real estate enterprises are required. Debt repayment extension is vital assistance since enterprises in this industry face not only bank obligations but also corporate bonds with stagnating income streams.

Experience indicates that if it is feasible to assist real estate enterprises in surviving this tough era, the economy will grow and the real estate market will return to its usual rhythm over the next few years.

Real estate credit under strict control

With the issuance of Resolution No.01/NQ-CP, the Vietnamese government has affirmed that it will strictly control credit for potentially risky sectors, especially real estate, beginning this year.

Banks anticipate real estate credit rally

As the Vietnamese authorities continue to tighten controls on potentially hazardous industries, financial institutions are beginning to place more restrictions on real estate-backed loans.

Central bank not tighten real estate credit: Deputy Governor

The State Bank of Vietnam (SBV) has never issued any documents or statements ordering credit for real estate be tightened, Deputy Governor Dao Minh Tu said on February 8.

By Nhue Man

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