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Tightened credit chills real estate sales
Commercial banks are tightening their real estate lending policies, sending a new chill over the property market.
Since July, banks have hiked lending interest rates and applied greater restrictions on mortgage loans, following a warning from the State Bank of Viet Nam urging greater caution on loans for real estate projects.
The warning was a response to the fact that real estate loans had risen to account for over 5 per cent of the bad debts of several commercial banks.
The real estate market contained high risks since many investors had leveraged existing projects as collateral to finance new projects, said Asia Commercial Bank credit council Chairman Pham Trung Cang.
Speculators were also financing the acquisition of homes and apartments in order to obtain additional capital for investment, allowing one housing project or unit to be used as collateral for a loan up to three times, Cang said.
Driven by this speculative fever, the prices of homes and apartments have increased substantially, and unequally among cities and provinces. For instance, in the last quarter of the year, the cost of a plot of land in the western part of Ha Noi rose by 30 per cent between December and July, while prices in HCM City remained fairly constant.
The risk to banks has become significant. In recent years, loans to build, purchase or improve homes have accounted for 35-50 per cent of outstanding commercial bank loans made to individual borrowers.
As of July 31, total outstanding mortgage loans totalled VND210.7 trillion (US$10.8 billion), an increase of about 14.4 per cent from December 31 of last year, the ministry said. But loans for new housing projects, meanwhile, actually fell by 2.35 per cent during the period.
To cool down real estate lending, banks have recently hiked real estate interest rates from a low of 15 per cent to a high of 20 per cent, according to the Ministry of Construction.
But, in a report submitted to the Government Office last week, the ministry complained that tighter credit posed major obstacle to further real estate development and was adding to the instability of the real estate market.
In early 2009, the report said, the availability of low interest loans under the Government’s economic stimulus package caused a short term spike in real estate prices in Ha Noi. But, since the end of the subsidised-interest loan programme, the real estate market has remained quiet, and in the third quarter of this year, threatened to become frozen due to tighter credit policies.
The report urged greater flexibility in regulating the real estate market.
About 2,500 housing projects are currently under construction, according the ministry figures, including 800 projects in Ha Noi, 1,400 in HCM City, 260 in Hai Phong, and 120 in Da Nang.
vietnamnet, VNS
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