Continuing to lower interest rates could cause real estate speculation to return.

Real estate is one of the most volatile economic sectors.

According to VIRES, real estate is one of the most precarious industries when the economy falls into a spiral of low growth after the impact of the Covid-19 pandemic and is affected by many unfavorable factors when the global economy fluctuates.

Real estate businesses are facing great difficulties and challenges, even more severe than the crisis in 2010 - 2013.

According to the General Statistics Office, from the beginning of the year to the end of October, 1,067 real estate enterprises nationwide were dissolved, an increase of 9.5% over the same period in 2022.

Thus, 107 real estate businesses leave the market each month. Meanwhile, the number of newly established real estate businesses in the past 10 months also decreased by 50.2% compared to the same period in 2022.

Continuing to lower interest rates could cause real estate prices to return to their original level.

Most real estate businesses have had to change their business plans, stop or postpone investment activities, project construction, stop IPOs, reduce production scale, even transfer projects, cut 70-80% of their workforce and make every effort to restructure, find ways to survive and recover.

However, in the context of sharp decline in liquidity, the difficulties of real estate businesses are becoming more and more complicated, especially financial problems.

Faced with the difficult financial situation, not only real estate businesses but many other sectors in the economy seem to be looking more to the support of monetary policy.

VIRES emphasized: Credit growth and access to credit capital have become hotly discussed issues in almost all large and small forums and conferences.

New signals such as "loosening room", "increasing real estate room", "clearing credit bottlenecks", "improving credit growth"... are welcomed by the market as a positive sentiment.

“ Resolving difficulties for real estate businesses to recover; developing a safe, healthy and sustainable real estate market is becoming an urgent issue to create an important driving force for the recovery of the economy as this is an industry with a large spillover effect” - VIRES emphasized.

Continuing to lower interest rates could cause real estate speculation to return.

Currently, many real estate businesses continue to express their desire for monetary policies to be loosened, including some recommendations to continue lowering interest rates. However, VIRES believes that reducing interest rates at this time is no longer important.

Because, in the first half of 2023 alone, the State Bank has reduced its operating interest rates four times in a row. Accordingly, the deposit interest rates and lending interest rates of commercial banks have also decreased to better suit the borrowing needs of people and businesses in the new context.

However, the interest rate reduction has not been effective in pulling the economy up as expected, but whether or not to continue to reduce interest rates is also an important issue.

“ Lowering interest rates to bring credit prices down further will face obstacles such as the risk of inflation still lurking, the impact on exchange rates when interest rates of the USD and in many other major economies have not decreased or even have the potential to increase,” said the VIRES report.

On the other hand, increasing credit only by reducing interest rates without taking measures to recover, consolidate and develop aggregate demand, while finding ways to push capital into the market will cause credit capital to increase and be transferred to financially unsustainable production and business projects with uncertain debt repayment plans.

VIRES believes that due to the lack of feasible production and business projects with the ability to repay loans, efforts to increase capital to the market may even lead to credit capital being transferred to speculative sectors, thereby causing some markets to increase in price bubbles again.

Not to mention, strong credit growth will support the market, but weaken the efforts of businesses in general and real estate businesses in particular in diversifying capital sources by issuing corporate bonds and project bonds.

What is the real estate market waiting for?

VIRES believes that, in recent times, the State Bank has made many efforts in directing credit institutions to focus capital on projects.

Relevant ministries and local authorities also need to take measures to remove difficulties for businesses and support businesses in completing legal conditions.

However, real estate businesses should not rely too much on bank credit, wait for room to be loosened or room to be increased 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.

According to VIRES, 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 real estate industry's dependence on banks, only then can risks be dispersed" - VIRES stated.

In the long term, it is necessary to continue to improve 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 when there is a risk, it suddenly "brakes", leaving businesses unable to react in time, as happened in 2022.

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.

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 cut losses to restructure corporate debt, "cleaning up" records of accessing credit and bond capital and capital from customers' deposits.

VIRES believes that the story of re-establishing balance in the real estate market and unblocking the flow bottlenecks requires the cooperation of the Government and ministries, but cannot lack the initiative of businesses.

“Finding opportunities in challenges and being flexible to adapt is the way businesses that want to survive and escape the quagmire need to focus on,” VIRES emphasized.

According to VIRES, although the real estate market is facing unprecedented difficulties and the recovery rate is quite slow, with the determination of the Government and ministries, branches and localities to overcome difficulties for businesses as well as the efforts of the business community to overcome difficulties, it is expected that the real estate market will have solid steps, develop more professionally, healthily and sustainably in the future, accordingly all "flows" will be cleared.

Dinh Tran

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