TIGHTEN CREDIT FOR THE REAL ESTATE MARKET – DON’T LET THE MARKET FREEZE
The State Bank’s recent decision to severely regulate lending for real estate (real estate) has caused capital flow into the market to show signs of “staying.” Numerous analysts predict that the real estate industry will be immobilized if restrictions are implemented swiftly and aggressively. Funds “hidden” in the bonds of real estate businesses. Real estate credit restrictions are no longer a trending topic; two years ago, banks similarly restricted lending. Therefore, real estate businesses (DN) are increasingly issuing bonds with high interest rates to raise funds from the general populace. However, the penalties for businesses that operate in an opaque manner have arrived. Case in point: the Tan Hoang Minh Group. This organization “collected” and utilized more than 10,000 billion VND raised through the issuing of bonds. The authorities continue their investigation. Thousands of investors are at risk of losing their valuables since they do not know when they will receive their funds.
Real estate credit restriction: Do not allow the market to become paralysed. When credit is constrained, the housing market will be impacted. Image: Nhu Y Increased cash flow into the real estate industry via corporate bonds. In 2021, real estate companies have issued 214,440 billion dong in bonds, which is greater than $9 billion USD and is three times the amount issued in 2020. From the start of the year until the present (31 March 2022), the total worth of development The amount of bonds issued to the public increased by 13.7% compared to the same period last year. With a total issue volume of VND 17,211 billion, representing 43.3% of the total issuance value, the real estate group is presently the leader in terms of issuance value. Numerous real estate companies’ decision to raise cash through bond issuance, large-scale issuance, and high interest rates will cause market hazards.
According to Nguyen Quoc Hung, General Secretary of the Diamond Island apartment for rent, limiting speculative activities, promoting market transparency, and preventing a real estate bubble can be accomplished by restricting bond credit. This is vital to make the real estate market healthy and eliminate risks to the economy, particularly in light of the recent “hot” surge in the real estate market, during which the majority of investors utilised financial leverage. “However, the strategy of restricting credit makes it difficult for individuals, investors, and real estate firms to obtain bank loans,” Hung explained. According to Mr. Hung, the outbreak of COVID-19 and problematic developments for an extended period of time made production and commercial activities difficult, and savings interest rates decreased substantially, so real estate business became one of the primary investment channels. According to Mr. Hung, the growth in outstanding real estate loans would result in a rise in bad debts in the near future. Need to carefully consider Associate Professor Dr. Dinh Trong Thinh analysed, in conversation with PV Tien Phong, that tightening real estate loans will have numerous effects. First, there is a lack of inventory on the real estate market. (In both Hanoi and Ho Chi Minh City in the past, the number of licenced projects has been insufficient, resulting in a negligible amount of items being pushed onto the market.) In the meantime, the demand for property ownership among the populace is very high. “Because we are a developing nation, the homeownership rate is still low, and the average housing size is only 23 square meters, which is smaller than the global average. Rapid urbanization also increases real estate demand. In addition, the issues of the real estate market include inflated pricing, a lack of trading transparency, etc. Assoc. Prof. Dr. Thinh stated that banks that restrict credit for real estate can lower the quantity of money entering the market, hence contributing to a reduction in the manner businesses steal from investors. “If the restriction of real estate lending is done improperly, the real estate market will undoubtedly slow down, become sluggish, and possibly freeze over.” About 40 industries and professions support the real estate sector. Therefore, managers must carefully analyze,” stated the American Society of Association Executives.
According to Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association (HoREA), the tightening of real estate credit hurts those who need to buy a home the most, since it becomes more difficult for them to obtain a bank loan and house prices may increase. According to Mr. Chau, the healthyization of the real estate lending sector is a legitimate policy, but if carried out in an extreme manner, it could cause the market to stagnate, resulting in numerous risks. “How to squeeze, and who to squeeze, must be properly considered; if not, there would be uncontrollable results,” warned Chau. In reality, for the past two to three years, although businesses in other industries have been able to borrow at interest rates between 7 and 9 percent per year, real estate has been required to borrow at interest rates between 11 and 13 percent per year. In addition, borrowing requirements are always significantly more stringent than those for a standard company plan. In response to the State Bank’s repeated requests for restrictions, a number of banks have continued to cut the lending ceiling.