HoREA offers proposals to help real estate firms access long-term bank loans

An apartment building in the Nam Trung Yen Urban Area in Cau Giay District's Trung Hoa Commune. - VNS Photo Doan Tung

The HoREA also proposed the rate should be reduced to 37 per cent starting from January 1, 2021; 34 per cent from July 1, 2021; and 30 per cent from July 1, 2022.

The moves were announced after the SBV released a draft circular stipulating that the maximum ratio of short-term funds used for medium- and long-term loans at banks would be reduced from the current 45 per cent to 40 per cent from 2019 to June 30, 2020.

Under the SBV’s draft circular, the rates of 37 per cent and 30 per cent will be applied from July 1, 2020 and July 1, 2021, respectively.

According to the HoREA, the amendments will damage the real estate market as property enterprises are in dire need of medium- and long-term loans. It explained that due to the large proportion of short-term capital in banks’ total mobilised capital, banks will find it difficult to meet the demands of the real estate market.

The HoREA said real estate firms in developed countries have raised capital from investment funds and stock markets. Bank loans are mainly provided to homebuyers. However, in Vietnam, property companies are dependent on bank loans and capital mobilised in advance from homebuyers, while most homebuyers also take loans from banks.

The local stock market has yet to become a major channel of capital access for real estate enterprises as the number of listed property firms is small. Only some 65 out of more than 1,000 real estate firms are listed on the stock market, the HoREA said.

Real estate investment funds and the stock market are unable to meet the high demand for capital in the property sector. Vietnam currently has only one investment fund for the sector, Techcom Vietnam Real Estate Investment Trust, an arm of Vietnam Technological and Commercial Joint Stock Bank, with charter capital of only VND50 billion (US$2.14 million).

The foreign direct investment (FDI) inflow to the local real estate market is also limited and does not meet capital demands, though it accounts for some 21 per cent of the country’s total FDI value, the HoREA said.

It expects the application of the amended Law on Securities this year to create favourable conditions for the establishment of real estate investment funds and trusts to provide capital for the local market.

According to the Law on Real Estate Business, investors in property projects must provide at least 15 per cent of the equity or 20 per cent of the investment capital. The remaining 80-85 per cent of capital can be mobilised from banks or customers.