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Central bank targets real estate transactions in dollars
The State Bank of Vietnam (SBV) has released a document urging Hanoi and HCM City branches to strengthen inspections of real estate transactions made in dollars. The move is part of an effort to make dong the only currency used in Vietnam.
In fact, both real estate sellers and buyers understand that they must not post prices or payments in dollars, because the law stipulates that only the local currency can be used. However, they still ignore the regulations.
After SBV released the document, threatening to impose heavy fines on violatiors, real estate companies dare not set prices in dollars anymore. However, they can still require buyers to pay in dollars.
To “dodge the laws”, sellers write down in purchase contracts the price in dong. However, sellers and buyers orally agree to pay in dollars. If buyers pay in dong, the dong will be converted into dollars at the black market exchange rate, not the rate quoted by commercial banks.
Since the dollar nowadays tends to increase, buyers try to collect dollars in advance to avoid exchange rate risks. In late August 2010, for example, the dong/dollar exchange rate rose from 19,200 dong per dollar to 19,520 dong per dollar, an increase of 320 dong. If buyers could not buy dollars at that time, they must pay 320 dong per dollar more now. Meanwhile, prices in dong have automatically risen.
Financial experts pointed out that setting prices and making payments in dollars is a big problem in foreign exchange management that needs to be settled. Real estate developers borrow money from banks in dong, pay for land in dong, purchase construction materials in dong and pay workers in dong. Therefore, they have no reason to require buyers to fork over dollars.
The currently applied Foreign Exchange Ordinance clearly stipulates that all the transactions in Vietnamese territory must be carried out in dong.
Real estate developers still set prices and payments in dollars, because they want to ensure their profit in case the dong loses value against the dollar. A Deputy General Director of a real estate firm in HCM City remarked high grade real estate project developers always set prices in dollars because they want to affirm the high quality of their products.
Nguyen Hoang Minh, Deputy Director of the SBV HCM City branch, observed that the branch and the HCM City Market Control Sub-department are discussing long-term plans to inspect real estate companies that post prices and payments in dollars. However, Minh added, the heaviest fine that can be imposed is just 15 million dong, which is not high enough to deter violators.
Dr, Le Xuan Nghia, Deputy Chair of the National Finance Supervision Council, maintained that real estate developers always fear the dollar will appreciate against the dong, so they require dollar payments to preserve their capital. A lecturer of HCM City National University commented that dollar payments shows that many people are influenced by exchange rate forecasts that might be untrue.
Economists have also pointed out that this behaviour not only violates current laws, but also affects the benefits of sellers. The habit of paying in dollars can makes both sellers and buyers become speculators. They try to collect dollars to make payments, and their behaviour creates an artificial shortage of dollars on the market, thus pushing dollar prices up.
vietnamnet, NLD
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