Real estate businesses still worry about tight capital flows

Circular 06/2023 regulating lending activities of credit institutions and foreign bank branches to customers takes effect from September 1, 2023.

Accordingly, credit institutions are not allowed to lend to pay for capital contributions, purchase, or receive transfers of capital contributions of limited liability companies or partnerships; contribute capital, purchase, or receive transfers of shares of joint stock companies that are not listed on the stock market or have not registered for trading on the UPCoM trading system.

According to the State Bank, this regulation only applies to the purpose of paying for capital contributions, purchasing, receiving transfers of capital contributions of limited liability companies and partnerships; contributing capital, purchasing, receiving transfers of shares of joint stock companies that are not listed on the stock market or have not registered for trading on the UpCOM trading system. For the purpose of contributing capital, purchasing, receiving transfers of capital contributions at listed joint stock companies, credit institutions shall provide loans in accordance with regulations.

Circular 06 supplements the regulation that credit institutions are not allowed to lend to pay for capital contributions under capital contribution contracts, investment cooperation contracts or business cooperation contracts to implement investment projects that do not meet the conditions for putting into business according to the provisions of law at the time the credit institution decides to lend.

The State Bank affirms that this regulation only applies to investment projects that do not meet the conditions for putting into business according to the provisions of law. For investment projects that meet the conditions for putting into business according to the provisions of law, credit institutions will continue to consider lending to customers to pay for capital contributions according to capital contribution contracts, investment cooperation contracts or business cooperation contracts according to the provisions.

In just over a month, the above regulations will come into effect.

In the context of difficulties and legal "entanglements" that have not yet been resolved, real estate businesses are still concerned that the regulations in Circular 06 may make it more difficult for real estate businesses to access capital.

Need to recalculate

Talking to VietNamNet reporter , Mr. Pham Duc Toan, General Director of Real Estate Investment and Development Joint Stock Company (EZ Property) said that in a difficult period that should have been resolved, the regulations in Circular 06 unintentionally added more difficulties for businesses. "There are many issues that the State Bank needs to recalculate in this Circular 06," Mr. Toan said.

Real estate businesses are worried that the difficult capital flow will further limit the supply of real estate. (Photo: Hoang Ha)

According to the leader of EZ Property, increasing the number of groups of people who are not allowed to borrow capital further tightens the capital flow for the real estate market, especially for businesses that want to cooperate in investment and are required to be listed companies.

“The number of businesses operating on the stock exchange is very small compared to the volume operating outside, unlisted,” said Mr. Toan.

In addition, not providing loans to pay for capital contributions under capital contribution contracts, investment cooperation contracts or business cooperation contracts to implement investment projects that do not meet the conditions for putting into business, according to Mr. Toan, this regulation makes it very difficult for businesses wanting to access capital.

According to the leader of this company, when the project is eligible for sale, it means that the company has completed many steps from legal procedures, site clearance, infrastructure construction and land use fee payment... After completing that stage, the company will almost never borrow again.

“Credit growth in the first 6 months of the year was very low. Meanwhile, most real estate businesses use very large leverage capital. In addition to their own capital, other sources of capital such as bank loans, mobilization from partners, customers, bond issuance, etc. are all stopped. This regulation is very difficult for businesses at the present time,” Mr. Toan emphasized.

Also sharing with reporters, Mr. Vu Kim Giang, Chairman of the Board of Directors of SGO Group Corporation (SGO Group), is concerned that adding more cases that are not eligible for loans in Circular 06 will limit access to capital for investment cooperation and project transfer.

“Previous projects that have not been implemented, or even new projects that are preparing to implement investment and are looking for partners to cooperate or transfer, will all encounter problems with capital flow. This will slow down the implementation of projects,” said Mr. Giang.

Mr. Giang cited that for land projects, to be eligible for sale, investors must complete all infrastructure, land use fees, site clearance, etc. Only then will lending money for investment cooperation be meaningful. At that time, the enterprise will sell to individual customers, collect money according to progress, without needing investment cooperation.

According to the Chairman of SGO Group, investment cooperation between units mostly occurs before the project is eligible for sale, because that is when they need each other's capacity, especially finance.

“In the context of limited real estate supply due to legal problems and overlapping laws, applying Circular 06 will further limit supply due to financial problems. At this time, businesses are also facing many difficulties and are in dire need of other sources of capital through M&A and project transfers. However, if cooperative partners do not have loans and only use their own capital, it will be very difficult to cooperate in investment in the context of tight cash flow,” Mr. Giang worried.

Proposal to amend the Circular

EZ Property General Director said that, in addition to the real estate sector, Circular 06 is also related to PPP projects, urban development infrastructure, agriculture and forestry...

When required to be listed on the stock exchange, meeting the business conditions like a PPP project means that the road must be completed. While implementing this project requires a huge amount of capital, but not being able to access it will directly affect the social infrastructure investment activities of the economy.

Mr. Toan illustrated that EZ Property is implementing a number of urban infrastructure projects and is in dire need of money. In the recent past, businesses have had difficulty accessing bank capital and interest rates are high. When interest rates decrease, businesses plan to access that capital through partners and borrow. However, with the conditions set forth in Circular 06, the company is almost eliminated from the list of permitted borrowers.

"The circular has been issued but has not yet been implemented, so it needs to be carefully considered and the inappropriate conditions in current conditions should be removed," Mr. Toan suggested.

SGO Group Chairman Vu Kim Giang said that it is necessary to consider plans to help businesses access capital so that projects can be better implemented and the supply to the market can be improved.

However, if there is a credit support mechanism, it will help increase purchasing power and increase total demand for the real estate market.

Previously, the Ho Chi Minh City Real Estate Association (HoREA) also sent a document requesting consideration of adjusting regulations, including the content of 4 cases where customers "in need of capital are not allowed to borrow credit".

According to HoREA, clauses 8, 9 and 10 will lead to a situation where some businesses in various sectors of the economy that need to borrow capital, including real estate businesses, home buyers and real estate investors, will have difficulty accessing credit.

In addition, this Association also stated that Circular 06 of the State Bank was issued before Resolution 97, so it needs to be considered for amendment so that the State Bank can implement solutions to operate monetary policy proactively, flexibly, and in harmony with a reasonable expansionary fiscal policy...

Concerned about adding more "barriers" to borrowing capital, HoREA proposes to amend the circular . The Ho Chi Minh City Real Estate Association (HoREA) has just sent a petition to the Prime Minister and the State Bank, proposing to amend a number of regulations that will take effect next September due to concerns about adding more "barriers" to borrowing capital.

Source