Deputy Governor Pham Thanh Ha attends BIS' Global Economy Meeting

The GEM of January 2022 discussed the latest developments in the global economic and financial markets, with a special focus on the theme "House prices after the pandemic: motivations and implications".

Since the last GEM which took place in November 2021, the global economic growth has slightly decreased while the number of COVID-19 new cases has risen again. The fiscal stimulus packages are starting to be removed although many difficulties remained unresolved. Consumer price inflation is at high levels in many countries, and the global financial conditions are being tightened with the appreciation of the US dollar and the increases in government bond yields in many countries. Meanwhile, asset market risks are escalating; the credit conditions have become lax in many developed countries; the default of Evergrande – the real estate empire in China, the wide spread of the Omicron variant in many countries, etc. are still posing threats to the global economic recovery.

According to a BIS research, house prices have risen sharply during the pandemic, typically in the US, Germany, and the UK (24%, 15% and 13% higher respectively compared with the pre-pandemic prices). In almost all other developed countries, house prices have also increased. According to the BIS, the motivations of house price increases are a faster-than-expected recovery in economic activities, higher deposit interest rates, and large fiscal support packages boosting household incomes, especially in developed countries. Besides, the growing demand for living space and real estate away from the city centers, the disruption of the global supply chains increasing the prices of wood and steel,… are also the factors affecting the increases in house prices. According to a BIS report, the rises in the real estate market prices have great impacts on production and inflation. House prices also affect inflation indirectly through components of aggregate demand, as well as directly through rent prices.

Specifically, in a developing country like Vietnam, the demand to build infrastructure for socio-economic development is very big while the population is large and the population densities in big cities are increasing, leading to increases in the housing demand, creating a natural upward trend in real estate prices. In addition, asymmetric information in the market, high transaction costs and big delays in transaction time also contribute to the natural upward trend of real estate prices in Vietnam. The COVID-19 pandemic has increased people's need for protection, and the trend of working remotely has increased the demand for some certain types of real estate, and has caused price increases in some market segments.

In that context, the SBV has directed the credit institutions to strictly control credit for potentially risky areas such as real estate trading, securities, BOT and transport BT projects. In addition, the SBV has issued multiple documents directing and alerting the credit institutions about credit for potentially risky areas. Moreover, the SBV has issued and amended several Circulars on safety ratios, adjusted and decreased the percentages of short-term capital used for medium-term and long-term loans in accordance with the roadmap, increased the risk coefficient for large consumer loans, which aims to direct credit to the social housing and affordable commercial housing segments. At the same time, the SBV has closely supervised the situation of credit extension to the real estate business, and has enhanced the inspection and supervision of compliance with regulations on credit extension in this area.

In 2022, the SBV will continue to direct the credit flows into priority areas, create favorable conditions for enterprises and people to access bank credit, and limit black credit. With the real estate sector, the SBV will still create favorable conditions for residential real estate projects, encourage consumer credit for real and legitimate needs, and continue to strictly control speculative real estate, large projects with high risk coefficients.

The Bank for International Settlements (BIS) was established in 1930, with its headquarters in Basel, Switzerland. This is an international organization of central banks. The role of the BIS is to promote international cooperation between the central banks and other organizations for financial and monetary stability. Up to now, the Bank for International Settlements has 63 official members. Vietnam joined this organization in October 2020.

LK