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Realtors typically seek profits by developing the investment value of land, rather than by increasing land prices.
But pouring money into real estate, waiting for prices to increase, and seeking huge profits from artificial price increases are actions that are harming the national economy.
According to the State Bank of Vietnam (SBV), outstanding loans for real estate had reached VND1.85 quadrillion by the end of Q1, accounting for 20 percent of the total outstanding loans of the entire banking system, an increase of 3 percent compared with the end of 2020.
The real estate credit growth rate in Q1 was higher than the average credit growth rate in all business fields.
To stimulate credit demand, most commercial banks have recently launched real estate credit promotion programs with preferential interest rates.
The most common interest rates are 5.9 percent per annum for the first three months, 6.79 percent for the first six months, and 7.6 percent in the first 12 months. After the grace period, the interest rates will float, ranging from 9 percent to 11 percent per annum, or 1-2 percent lower than previously.
Commercial banks are trying to boost lending to the real estate sector because capital demand from businesses is low amid Covid-19, and interest rates on real estate loans are higher.
Reports show that outstanding loans to the real estate sector account for a large proportion.
Real estate loans are provided to fund trading activities, construction, home purchases, resort development and home building. The proportion is up to 70 percent at some banks, while it is 20-40 percent at others.
Bankers admit that they still made high profits in 2020 and saw satisfactory business results in Q1 2021, despite Covid-19, thanks to loans to the real estate sector.
Some joint-stock banks said real estate credit is ‘promising’. Deposit interest rates have become lower than ever. The Covid-19 pandemic has caused many businesses to shut down. Meanwhile, many investors are pouring money into real estate because they believe that property is not only a safe investment channel but also helps store their assets.
“The worst scenario of the real estate market in 2021 is that real estate prices will be the same as 2020. In other scenarios, the prices will escalate, thus bringing big profit to those who pour money into real estate today,” a banker said.
That is why the real estate market was busy in the first months of 2021. Real estate prices have soared by 30-200 percent, while the real estate interest index in Q1 2021 saw the highest increase in the last 10 years.
Harming the economy
Lawyer Nguyen Van Hau, deputy chair of the HCM City Bar Association, believes that one of the reasons behind the land fever is the expansion of real estate credit.
Many commercial banks are providing loans at low interest rates, just 4.99-10 percent per annum for real estate lending packages. This has prompted people to borrow money to invest in real estate.
A question has been raised about whether commercial banks are able to correctly calculate the amount of capital flowing into the real estate market and into each segment of the market.
While reports all show that capital flowing into the real estate sector is higher than capital to other business fields, many real estate firms still complain they find it difficult to get bank loans to develop their projects.
SBV affirmed that real estate credit has been decreasing in the last three years.
In 2020, due to Covid-19, real estate credit grew by 11.89 percent, while it was 26-28 percent in 2018-2019. In Q1 2021, real estate credit grew by 3 percent, lower than that of the same period of 2018-2019 (It grew by 5.13 percent in Q1 2019).
However, Nguyen Tuan Anh, director of the Department of Credit for Economic Sectors, said his concern is about some business fields that have seen growth rates higher than the average growth rate, such as real estate credit and investment in corporate bonds. The bustling domestic and international real estate and securities markets also pose risks to banks’ operations.
According to an officer at HDBank, outstanding loans for real estate are relatively high, accounting for 19 percent of total outstanding loans.
Some commercial banks that expanded credit by increasing loans to securities, real estate and corporate bonds were warned of risks by SBV at recent online conferences on credit development.
In the banking sector, the risks of some credit institutions also pose risks for the entire banking system.
Real estate prices have been escalating, raising the fear of a bubble. Matthew Powell from Savills Hanoi said he has seen some investment cycles with a lot of speculation activity, especially in the housing segment in Hanoi and HCM City. Investors use financial leverage, or bank loans, to carry out a high number of short-term transactions and surfing investments. The market has become very bustling, but this means that borrowers might fall into insolvency.
This article was originally published in VNA