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Vietnamese real estate experts have underlined the need to find ways to thaw the lackluster property market; otherwise, any failures in this sector will have a great impact on the economy.

Importance of the realty market

Dinh The Hien from Vietnam Export and Import Bank (Eximbank), speaking at a recent seminar at the HCMC University of Economics, called for concerted efforts by the Government to cope with problems in the sector.

“Realty-related business activities account for 30% of the economy,” Hien said.

The realty market is closely related to other markets such as stock, commodity and labor, so 1% growth in realty can create 1.5%-2% growth in related markets, Hien said.

Real estate is always the most important asset for securing bank loans and thereby accounts for over 80% of all bank loan approvals. Without Government solutions, banks are forced to foreclose real estate loans to recover losses, thus devaluing properties on the market and raising bad debts.

“The vicious circle may cause the banking system to decline,” Hien said. In addition, banks cannot auction property at will. “Banks face a big problem as it takes around three years to finish procedures settling a bad debt,” said Pham Khac Khoan, vice director of Kien Long Commercial Joint Stock Bank.

Solutions for bad debts

Khoan suggested the State Bank of Vietnam total up all bad debts or property-secured loans and re-evaluate them according to market prices to find a solution. “We should give priority to properties with high demand and liquidity, not all bad debts at the same time,” Khoan added.

Many at the seminar agreed that a common fund of VND50-100 trillion should be established to help banks overcome the financial crisis. The money could mobilize the central bank’s currency, price stabilization funds, insurance deposits, or surplus capital from the equitization of State-run enterprises and be managed by the government to solve bad debts by buying back assets or providing short-term refinance credit to ensure liquidity.

The State Bank of Vietnam has announced the total outstanding loans for realty projects in the country are around VND115 trillion, with 74% of them provided for projects in Hanoi and HCMC. Lao Dong newspaper quoted commercial banks as saying the ratios of bad debt are low.

Stimulating the realty market

Eximbank’s Dinh The Hien said realty companies cannot get bank loans without buyers, so demand should be stimulated first.

On the other hand, banks will need to cooperate with realty companies, said Nguyen Huy Cuong from Saigon Thuong Tin Bank’s Securities Company. “Real estate corporations should focus on the housing market segment with prices ranging from VND500 million to VND1 billion per unit. There is high demand in this segment,” Cuong said.

But banks are reducing loans for property projects while people need to buy houses. As a result, there is little chance for these people to access bank credit.

Tran Hoang Ngan, vice rector of the HCMC University of Economics, also said that few banks have liquidated the bonds which they were forced by the state bank to buy in March as the coupon of the bond is fairly high, at 13% per year.

Many enterprises have plans to issue bonds with an interest rate of 14%-15% per year for two or three year terms, Le Anh Tuan of Dragon Capital said. It would be wiser for a bank to lend to big corporations with interest rates ranging from 15% to 16% annually within three to eight years than to a borrower with a monthly income of VND10 million at the rate of 18%.

The Sate Bank’s recent interest rate cut fails to move capital to production activity or other useful places. “If the bond dividend is not reduced to 9%-10%, property enterprises and house buyers will face more difficulties in the future,” Tuan said.

The Saigon Times Daily/
Image from: Fredi Meier

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