Vietnam’s real estate market relies largely on credit and corporate bonds. The two channels are now being tightened, greatly affecting the real estate market. Market liquidity is showing signs of slowing down.
The State Bank of Vietnam (SBV) has issued an action plan for the banking sector to implement Resolution 11/NQ-CP dated January 30, 2022, of the Government. In particular, the SBV requires banks not to relax credit-granting conditions, and at the same time control credit in potentially risky fields such as real estate investment, securities, BOT projects, and corporate bonds. Banks will have to strengthen control of credit facilities for borrowers to participate in land auctions.
From the beginning of this year, the State Bank has also continuously asked banks to tighten lending activities related to the real estate sector. By the end of March and the beginning of April 2022, several banks such as Techcombank and Sacombank announced suspending the disbursement of real estate loans.
Specifically, Sacombank announced that it will not grant credit to the real estate sector (until the end of June 2022). Techcombank also announced the suspension of disbursement of certified real estate loans and secondary loans to buy real estate (including uncertified/certified) from March 25, 2022 (until the end of the quarter I/2022). Disbursement will continue to be carried out in the second quarter of 2022.
In addition, many other banks, such as VPBank, VIB, MBBank, TPBank, MSB, etc., also witnessed a sharp increase in outstanding loans related to real estate in recent years and accounted for a large proportion of the total outstanding loans.
Meanwhile, statistics show that although real estate loan growth has decreased from over 26% in 2018 to around 12% in 2020 and 2021, real estate credit accounts for about 18-20% of the economy's total outstanding loans. It is also important to know that in the loan structure of many banks today, loans to buy houses and land may currently be in the form of consumer loans or business household loans. Therefore, the actual total outstanding loans related to real estate could be much larger.
After the State Bank of Vietnam issued regulations to tighten credit for loans for real estate businesses, several real estate businesses switched to raising capital through bond issuance.
According to data from the Vietnam Bond Market Association (VBMA), in the first two months of 2022, the market recorded eight corporate bond issuances to the public (collecting 5,509 billion VND) and 26 issuances of individual bonds, earning 22,185 billion VND. Compared to the same period last year, the total value of bonds issued to the public increased by 31%, and the total value of private bond issuance increased by 51%.
After Tan Hoang Minh Group canceled 9 bonds issued from mid-2021 for concealing information and disclosing incorrect information, the Ministry of Finance asked the regulator to strengthen supervision and management of corporate bond issuance. According to the credit rating agency FiinRatings, companies will no longer easily borrow capital from the people through bond issuance. The pressure to repay bonds due in the next 2-3 years is quite large.
With banks tightening credit sources for real estate, mobilizing via bonds is no longer easy. Capital flows into the real estate sector are thus facing the risk of further narrowing.
Many banks restrict real estate loans, participate in land auctions, tighten capital mobilization through corporate bonds, etc. In addition, in the face of extremely high land prices, the Government has prevented it by not allowing subdivision, division, or conversion of agricultural land. These measures are meant to steer the real estate market back to its true value.
Commenting on these regulations, Mr. Nguyen Van Dinh, Deputy General Secretary of the Vietnam Real Estate Association, said that the credit tightening for real estate has been going on for many years. However, there have been several recent incidents related to real estate cash flows, stocks, and bonds, so the authorities have pushed even harder on the action.
Although affecting a part of investors' activities and the market, that is a positive move. Tightening credit will reduce borrowing for speculation, weakening purchasing power, thereby reducing speculation.
Many other experts also affirmed that the credit tightening would force real estate businesses to be unable to invest and use capital without focus as before. In the long run, they must concentrate on the most feasible projects, bringing products to market as quickly as possible to raise capital from customers. This policy will most seriously affect businesses that need to borrow capital to prepare for the land fund or invest in the future.
Real estate projects that have had a long preparation process will not be affected in the short term due to a lack of supply in the market.
Compiled by VietnamCredit