Controversies arise as realtors feel left out amid health crisis

According to VietinBank, vulnerable industries which are hit hard by the pandemic should be given priority support. Photo: Shutterstock

Given the economic disruptions stemming from the outbreak, Vietnamese regulators and banks have ramped up their assistance and delivered a number of relief measures to offset pandemic-related setbacks for affected customers.

Major banks have continued to reduce lending interest rates and added preferential interest rate packages to support people and businesses feeling the brunt of the pandemic. The local government has rolled out tax incentives in preferential schemes to enhance competitiveness for local producers.

However, the relief measures are not applied to securities loans and real estate business loans, as they are of “a risky nature”, according to the State Bank of Vietnam (SBV).

Nguyen Huong, CEO of Dai Phuc Land, said that the prolonged pandemic has directly affected real estate businesses, and caused a severe decrease in revenues and profits, leading to the inability to ensure the payment of due date loans.

“Banks have simultaneously rolled out a series of preferential interest rate packages to support affected businesses and individuals. However, the application of preferential interest rate policy excluding loans to securities and real estate is not fair,” Huong said.

Real estate loans accounted for a large proportion of the credit structure of banks and also brought significant profits for the banks.

“Real estate is also a key sector contributing to economic growth, affecting more than 200 related industries. Therefore, there is no reason why real estate loans are not on the list of those entitled to the newly-announced interest rate support policy,” she stated. “Banks should have solutions to temporarily freeze, reschedule, and lower interest rates in the short term for current loan packages, especially for developers who are currently in their project development.”

On the same boat, Nguyen Hoang, director of Research and Development at DKRA Vietnam, said that applying the preferential interest rate policy excluding loans to securities and real estate is creating unfairness for the real estate market.

Tough times

According to DKRA Vietnam, around 70 per cent of real estate brokerages are encountering obstacles. Many brokers find it hard to maintain their current jobs. To survive the pandemic, many real estate brokerage businesses had to cut staff, reduce salaries, and many even had to halt operations.

Moreover, 50 per cent of real estate brokerages surveyed by DKRA have reported revenues decreasing by nearly 90 per cent compared to pre-pandemic levels. Only 10 per cent of surveyed real estate brokerages reported stable revenues, consisting of mostly large-scale companies.

According to Hoang, if there is no support from extension, debt reduction, or loan interest, the real estate sector will become stuck in the mud.

“Besides interest rates reduction, real estate businesses need other tax assistances such as corporate income tax and personal income tax, to name two,” he said.

David Jackson, general director of real estate firm Colliers Vietnam, told VIR that with the current situation, lending is also not very effective due to low transaction volume. “Buyers have limited travel to carry out procedures such as notarisation, signing papers, and viewing land. Besides that, the sky-high prices of raw materials and the suspension of construction works also make it difficult to complete projects. In the market at this time, supply and demand both decrease,” said Jackson.

“Prime Minister Pham Minh Chinh also asked the SBV to manage capital flows into real estate, ensuring to serve the needs of the people. The SBV will strictly control credit for potential risk sectors such as real estate, stock, build-operate-transfer (BOT) projects, and so on, and strengthen risk management for life loans and consumer credit,” he explained.

Earlier in August, the Ho Chi Minh City Real Estate Association had proposed some suggestions to the SBV and commercial banks in a bid to support businesses and homebuyers.

“The association suggested that commercial banks consider reducing loan interest by about 2 per cent per year on existing and new loans to support the business community,” said chairman of the association Le Hoang Chau.

During this market turbulence, many commercial banks have provided a number of relief measures and lowered their interest rates to help customers ride out the bumps.

BIDV, Vietcombank, MB, Viet Capital Bank, SeABank, Shinhan Bank, and several more have promptly implemented interest exemptions, reductions, and debt extensions for customers affected by the pandemic.

MB has slashed its interest rates by 0.5-1.5 per cent, depending on specific customer groups and the extent to which customers are affected by the pandemic.

Pham Nhu Anh, member of the Board of Management and head of the Corporate and Investment Banking Division at MB told VIR, “We roughly estimate that in the last five months of this year, we will reduce interest rates by 0.5-1.5 per cent, which is around $50 million for customers affected by the health crisis. The preferential loan packages are applied for both existing and new groups of customers, particularly for prioritised ones.”

HDBank and BIDV also announced to reduce interest rates for nearly 18,000 customers with an average reduction of 1 per cent for three customer groups affected by the outbreak, particularly for manufacturing and agricultural sectors.

Viet Capital Bank is one of several domestic lenders providing preferential interest rates programmes for construction companies facing financial hardship due to increasing construction material prices.

“Viet Capital Bank sets aside a support package of up to $34.8 million, the loan interest rate from 7.5 per cent per year (lower than average rates), and reducing guarantee fees by 55 per cent,” a representative from Viet Capital Bank said.

Targeted support

According to VietinBank, the vulnerable industries which are hit hard by the pandemic and should be given priority are textiles and garments, footwear, pharmaceuticals, medical supplies, rice, agricultural businesses, essential consumer goods, retailers, and aquatic products. The bank did not mention property as a part of the prioritised group.

Likewise, Vietcombank noted its interest rate reduction will not be applied to securities loans, real estate business loans, or mortgage loans.

In April, the SBV issued Official Dispatch No.3029/NHNN-TTGSNH to credit institutions and foreign bank branches, instructing them to implement strict control over the quality of credit in sectors with potential risks such as real estate and securities. In particular, high-risk credit areas include investments in corporate bonds, securities credit, real estate, BOT projects, and consumer loans.

Nathan Vu, founder of local asset management Art Investor, says real estate is a capital-intensive industry, while recent statistics compiled by the Vietnam Real Estate Association pointed out that it makes up for around 7.62 per cent of domestic GDP.

“The manufacturing industry plays the stellar role in the country’s advancement and in GDP growth, followed by agro-forestry-fisheries. If real estate, while accounting for a smaller proportion of GDP, enjoys the larger benefits of financial support packages, this will spur financial fragility and potentially create an asset bubble,” Vu said.

Banks are now well-positioned to manage risks, particularly those associated with the real estate industry.

“They might be afraid of a downturn similar to that experienced in 2008, and they are now bracing for repeated worrying signs. So it is reasonable for banks to adjust their policy framework and be extra cautious of a sharp increase in real estate’s leverage,” he added.

Nguyen Duc Hoang, senior analyst at Bao Viet Securities said, “Credit balance for real estate loans is already high. Within a limited resource, if banks focus on property, many other fragile sectors have to shut their doors, and this will not create much value in terms of sustainable development.”

“It’s hard to discriminate between property’s legitimate consumers and speculators. So, the SBV is completely fair and square for strict control over property-related lending activities at the moment, and much-needed capital should be channelled into the most vulnerable sectors instead,” Hoang said.