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Vnre.blogspot.com - Real estate developers are struggling to find alternative funding for their building projects rather than having to rely almost entirely on bank credit.

A forum titled "Development of the Ha Noi Real Estate Market in Ha Noi", last week estimated the market would need US$130 billion in the next 10 years.

But the trickle of capital from project owners, civil groups and the Government coupled with limited bank credit for the industry is making the target very elusive.

"The real-estate industry is as much as 70 per cent dependent on bank credit," said overseer of the northern region real-estate trading floor, Phan Thanh Mai. "Owner equity contributes just 15-20 per cent - the remainder is mobilised from individuals, non-property companies and the Government."

The banks injected about VND218.89 trillion ($11.52 billion) into the property market to June 30, up about 36 per cent against the same six months of last year.
About 65 per cent of all real estate loans were made in Ha Noi and HCM City.

The amount of bank loans for the real estate market will probably rise slightly as a result of the increase but the amount of credit that goes to real estate will remain at about 11 per cent of all loans.

"Finding capital is very difficult for both investors and the real estate market without an open monetary policy," explained Ha Do Group Deputy General Director Tran Thu Hoai.

"Therefore, the market relies on capital mobilised from civil groups. It explains why, when interest rates change, the market is immediately affected."

Short-term money

Investment in real estate requires strong, medium- and long-term capital as well as a stable financial plan. But the shortage of long-term capital triggers a heavy flow of short-term money - less than a year - into the market.

"Sometimes, this ‘hot' money takes control of the real estate market," said former State Bank Strategy Department deputy director Nguyen Dai Lai.

The result was opportunities for speculators, the creation of bubbles and financial risk.

Investment and development banking, real-estate funds and securitisation were very efficient instruments but had not been deployed to offset the lack of capital for the property market, the deputy director said.

Deputy Construction Minister Nguyen Tran Nam suggested project owners reduce their dependence on bank credit with money raised from individuals."About VND1 billion ($52,083) from each will help reduce the capital shortage," he said.


Lai agreed but warned "watertight" notarised documents, agreements and guarantees would be required to protect mid- to long-term investors.

Forum participants also suggested pension, investment and home savings funds as alternative ways to raise capital.

Southern trading-floor representative Thanh Mai recommended that the "Real Estate Investment Trusts", now used in the US, Japan and Hong Kong be used as a model for Viet Nam.

The model was expected to govern real-estate securitisation and ensure a strong, transparent source of capital, he said.

Government Decree No 71/2010/ND-CP, which becomes effective next Monday, will allow prime investors to borrow money and issue bonds for their projects.

Reported by Ha Phuong/ VNA

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