Speaking at the online National Conference on "Unlocking and promoting a safe, healthy and sustainable development of the real estate market" held on February 17, 2023, Mdm. Nguyen Thi Hong, Governor of the State Bank of Vietnam (SBV), shared that four (04) State-owned commercial banks have agreed to deploy a credit package worth VND 120 trillion to promote social housing projects targeting workers and low-income people. This package will be subject to preferential lending interest rates, which are 1.5 to 2% lower than the average lending interest rates of the commercial banks in the market.
SBV Governor Nguyen Thi Hong speaks at the Conference.
According to the SBV Governor, it is necessary to make an objective and accurate assessment of the difficulties and obstacles of the real estate market in order to come up with appropriate solutions and to promote a safe, healthy and sustainable real estate market.
Through the reports and comments at the Conference, the real estate market has been affirmed to play a very important role in the economy because it has close links with various production sectors. In recent years, the real estate market has experienced high growth rates. However, at present, this market is facing a number of difficulties, including problems with capital availability, and part of which has arisen from the problems in accessing credit resources from the banking system. Therefore, removing the difficulties for the real estate market would help to ease other production and business activities of the economy.
Over the past, the banks’ credit for the real estate sector had experienced on average a significantly high growth rate. In 2022, the overall credit growth of the whole economy was estimated at 14.17%, while the credit growth for the real estate sector was as high as 24.2%. The proportion of real estate credit outstanding over the total outstanding of the whole economy was quite high, at about 21.6%, with the absolute value of 2,580 trillion VND, in which over 60% was credit for housing projects, mainly in the high-value housing segment. This reflects a picture of imbalance between the supply and the demand of the real estate market, as also commented by the participants at the Conference, and more than 30% was loans for real estate business demands. From the above figures, it is inaccurate to assess that the credit policy had been tightened for the real estate projects over the past year. According to Dr. Can Van Luc, within the capital funding for the real estate development in 2022, the banks’ credit accounted for up to 70%, while other channels accounted for only about 30%.
In 2022, other funding channels, such as the corporate bonds, faced a lot of difficulties. This had been a channel to mobilize medium and long-term capital resources, supporting significantly to reduce the dependence on the banks’ credit, because the capital resources provided by the banking system are mainly short-term capital (80% from short-term deposits). Therefore, it is necessary to figure out possible solutions to restore the development of the corporate bond channel.
Since October 2022, when the incident with the SCB occurred, the commercial banks themselves have had to put more efforts into ensuring their liquidity. And therefore, the banks have had to balance their capital resources and restraint from providing more credit to the real estate projects, because those projects usually require large-valued and long-term loans, and it was the banks’ own decision on whether or not to approve a credit package.
Overview of the Conference.
For the real estate sector, the legal obstacles are currently the biggest, accounting for 70% of the difficulties faced by the projects. When there is insufficient legal basis, and the land prices have not been determined, it is not possible to prove the financial feasibility of the projects, or the developer’s debt service ability, and thus the credit institutions may find it hard to approve a loan. If the legal obstacles could be resolved, it would surely help to unlock the banks' credit flows.
About the imbalance between the supply and the demand in the market, there was quite a large portion of credit provided to the hi-end segment over the past years. For this segment, if the legal status of the projects can be completed, i.e. land-use right certificates are ready upon completion of construction, it will stimulate the housing demand for the hi-end segment. Besides, the segment of low-value housing and social housing is facing a serious shortage of supply, according to the report of the Ministry of Construction. Improving and promoting capital resources for the real estate market should be through solutions to boost the supply of the construction developers in this segment.
Previously, at another national conference on credit for the real estate sector, the SBV had directed the credit institutions to continue to allocate capital resources to the real estate projects that have met all legal requirements, with good saleability, and meeting genuine demands. Also, the commercials banks need to actively reduce their operating costs in order to provide loans at lower interest rates.
The SBV’s viewpoint is to develop a safe, healthy and sustainable real estate market, and in order to do that, it is necessary to aim at serving the majority of the people, especially those with real needs for housing, while restricting the speculation, price manipulation for profit.
For 2023, the SBV has set the credit growth target for the whole year of 14 to 15%, higher than the actual 14.17% of last year. The SBV does not set a separate credit target in order to control credit for the real estate sector.
For the proposal of the Ministry of Construction for a credit package of VND 110 trillion for the projects on social housing and housing for workers, the SBV recognized that it is necessary to have a separate credit package for this segment in order to increase the supply in the market segment, helping to reduce the imbalance in the real estate market. However, it is necessary to take into consideration the funding sources.
If we mobilized capital from the refinancing resources, it could reduce the flexibility of the monetary policy during the next 10 to 15 years. Therefore, in order to effectively mobilize the needed capital, we must take into consideration all macro calculations, in the context that the monetary policy has been adjusted to support several other policies of the Government, for example the restructuring of the poor-performing banks, and the allocation of resources for the development of other economic sectors and areas.
Four State-owned commercial banks have agreed to a credit package worth VND 120 trillion to promote this segment, with preferential lending interest rates (for both developers and home buyers), which are 1.5 to 2% lower than the average lending interest rates of the commercial banks in the market. The SBV will also encourage other commercial banks to participate to expand this package. During the implementation process, if the banks run low in their liquidity, the SBV is ready to provide refinancing resources to these banks.
About the common interest rates, the SBV has been putting efforts into regulating the market through the monetary tools, directing the credit institutions to further cut down on their operating costs in order to reduce the lending interest rates. Regarding the debt repayment terms, the Ministry of Construction needs to review the projects in order to respond through individual solutions for each project. The SBV will also direct the credit institutions to actively work with the real estate companies in order to remove the difficulties for this market.
LK