Real estate is prioritized but should not rely too much on bank credit

In the research report "Innovating the coordination mechanism between fiscal policy and monetary policy", the Vietnam Real Estate Association (VNRea) recommends that real estate businesses should not rely on bank credit.

Real estate is given high credit priority.

Statistics from the State Bank show that as of September 30, the total outstanding credit balance for the real estate sector of credit institutions reached VND 2.74 million billion, an increase of 6.04% compared to December 31, 2022, accounting for 21.46% of the total outstanding debt to the economy.

Real estate credit focused on consumption/self-use accounts for 64% and outstanding loans for real estate business activities account for 36% of outstanding real estate credit. In the first 9 months of the year, real estate business credit had a higher growth rate than the general credit growth rate and the same period last year.

It can be seen that businesses and units in 20 other economic sectors are having to "share" nearly 80% of the remaining credit balance. The real estate sector has been given quite a lot of priority in terms of the proportion of allocated credit balance when compared to the remaining sectors of the economy.

The banking industry must therefore also balance the allocation of credit among economic sectors.

Bank credit is essentially the money of millions of depositors and hundreds of thousands of businesses that have entrusted to the bank based on trust in the system. The bank has the responsibility to use that capital carefully, safely and effectively.

Lending to substandard projects with unclear legal status, unfeasible capital recovery plans or high risk levels not only poses risks to the bank itself, but also to depositors and the entire system.

Economic difficulties and business difficulties make the banking industry even more troubled in finding feasible and safe projects to invest the savings or deposits that depositors and other businesses have entrusted to them.

Lending for real estate projects and loans to buy housing and real estate products usually has a term of 10-20 years. Meanwhile, bank mobilization is usually only 12-24 months, the longest is 36 months. Mobilizing for 3 years but lending for 10 years or 20 years is a very big risk.

Therefore, the lending rate for long-term real estate projects using capital mobilized from deposits in the banking system also needs to be controlled for reasons of system safety.

Được ưu tiên nhưng bất động sản không nên quá dựa vào tín dụng ngân hàng - 1 — As of September 30, real estate credit accounted for 21.46% of total outstanding debt to the economy (Photo: Tran Khang).

Don't rely too much on bank credit.

VNRea recommends that real estate businesses should not rely too much on bank credit, wait for room expansion or room increase because the amount of credit poured into real estate is quite high and still on an upward trend. With the current situation, even if there is a separate room for real estate, businesses may not be able to access it because they do not meet the lending conditions from banks.

On the other hand, if real estate continues to rely on credit support, it will create huge systemic risks. Because when real estate defaults, it will spread to banks.

"Bonds must be the most important source of capital for the real estate market. The market needs medium and long-term capital, so it must rely on bonds, not bank capital. There is no other way but to reduce the dependence of the real estate industry on banks, only then can risks be dispersed," VNRea analyzed.

In the long term, the Association believes that it is necessary to continue perfecting the legal system to develop a healthy, transparent and sustainable bond market so that businesses have more space to mobilize capital.

The management of legal policies needs to avoid a situation where sometimes it is too loose to create a market full of loopholes for businesses to compete to issue, and then suddenly "brake" when there is a risk, leaving businesses unable to react, as happened in 2022.

The corporate bond market needs to soon become regulated, operate based on legal guidance and have close supervision.

In addition, unlocking capital from future real estate business is extremely urgent for real estate businesses, especially in the current difficult context. To do so, it is necessary to synchronously combine solutions from creating seed capital to resolving legal issues for projects.

No customer wants to buy a project that does not have full legal documents and is potentially risky. On the contrary, businesses that have legal documents removed, but are exhausted, without seed capital, cannot implement the project, and without a project, cannot generate cash flow from customers.

Meanwhile, if there is initial capital but poor market liquidity and no products can be sold, the project will be behind schedule, capital will be increased, and the business will likely fall into a debt spiral.

For real estate businesses, in order to move towards a period of sustainable growth and development, they need to survive the restructuring phase at all costs, including selling off assets to restructure corporate debt, "cleaning up" records of accessing credit and bond capital and capital from customer deposits.

In addition, project developers also need to restructure their investment products, they cannot just keep chasing the high-end segment and an "unreal prosperity" but must determine to pursue a price segment that is suitable for users' income, while exploiting the real needs of the majority, not the speculative purposes of a small group, creating disruption in the market.

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