Credit crunch burdens real estate market

The vast majority of real estate credit was poured into urban area construction and housing development projets

Huge real estate debts

According to data compiled by the State Bank of Vietnam’s (SBV) Department of Credit for Economic Sectors, the outstanding loan balance for real estate businesses amounted to VND825 trillion in 2022, the vast majority for urban area construction and housing development projects. Meanwhile, Hanoi Stock Exchange data show that the individual bond balance of real estate businesses reached about VND419 trillion late last year. This means that real estate businesses raised a total of VND1.24 quadrillion from credit institutions and through bond issuance in 2022 – but by the end the year, many had accumulated debts to the tune of 4-5 times their equity capital.

According to some economists, capital flowed smoothly and continuously from banks (credit institutions) and individuals (bond buyers) to businesses in recent years, but since the second half of 2022, the capital flow stopped. The other two capital mobilization channels – securities market and bonds – have not made up the credit shortfall, leaving property businesses thirsty for capital.

At a recent real estate credit conference, bank representatives rejected a series of proposals on debt structure and easing of credit access conditions, among others by real estate enterprises. SBV Governor Nguyen Thi Hong even affirmed that the central bank would strengthen inspection of banks that lend capital to their backyard businesses, corporations and projects.

Speaking at the conference, economist Associate Professor Dinh Trong Thinh said asking banks to rescue real estate businesses is highly risky for the whole banking system, as banks must comply with risk management standards to protect their interests, shareholders and depositors.

Dr. Le Xuan Nghia from the National Financial and Monetary Policy Advisory Council said credit plays a big role in the recovery of the real estate market, but capital should only be poured into good projects with major recovery potential.

Market solutions

Credit is crucial for the current real estate market but although it does not advocate credit tightening, the banking industry must be cautious to avoid safety risks.

The SBV chief said real estate solutions should be offered by all ministries, sectors and localities working together with the State Bank.

Economists said real estate businesses need to restructure product/project segments and focus on low-cost commercial housing projects, and housing serving real housing needs.

Associate Professor Thinh said real estate businesses need to cut prices and make them affordable to more buyers, enter joint ventures to find additional capital sources for projects that are about to be completed, and negotiate with bondholders to extend bond debt payment.

Sharing the same opinion, financial expert Dinh The Hien affirmed that no one can support the market when it is in recession, and real estate businesses can recover only when supply meets demand.