Concerning about the collapse of real estate bubble causing as many consequences as before, some banks have applied many solutions to limit the money flow into this market. The State Bank has also directed credit organisations to tightly control credit into potentially risky areas, especially real estate.
So far, some banks have boosted lending rates for home purchase, repair and new construction by 1-2 percent/annum compared to the previous period depending on each bank.
For example, Eximbank has decided to adjust up lending rates since May 2 for home and land purchase loans by one percent per annum compared to the previous year, to 11 percent/annum. This new lending rates are applicable to all loans including home building, repair and apartment purchase. Not only increasing lending rates, this bank also no longer carries out preferential credit package for real estate sector or individual home borrowers.
Similarly, Viet A Bank is applying lending rates for home and land purchase at 12.38 percent/annum. However, this lending rate is not yet the highest because in fact, some banks have pushed lending rates for home repair, new construction and purchase to as much as 13 percent.
Specifically, according to a consultant at Techcombank, currently, customers having demand for home purchase, repair or new construction will have to suffer from the interest rates amounting to 13 percent/annum after the preferential period. “Lending rates for real estate in recent time has only increased but not decreased”, said the consultant.
Noticeably, along with the interest rate increase, some banks also used different methods to tighten the cash flow into real estate sector such as lowering preferential loans, raising penalties for interest rate payment in advance, introducing more stringent conditions for home and land borrower, considering loans at no more than 50-60 percent of the value of collaterals.
The strengthening of interest rates and tightening of lending have caused real estate companies, investors and home borrowers to feel distressed. To Lan, living in District No.9, HCM City said she has contacted with a bank consultant and known that the preferential interest rate for the first year is 8.99 percent/annum. At the end of the preferential lending period, she will have to suffer from the floating interest rate of 13 percent/annum. This is a relatively high interest rate compared to normal business sectors at banks. That is not to mention, the earlier debt payment will incur customers an additional penalty of three percent.
“This interest rate is higher than expected so I have to consider and calculate so as not to fall into bankruptcy because of bank interest rates”, said To Lan.
Nguyen Hoang Minh, deputy director of the State Bank’s HCM City branch said currently, real estate loans account for about 10.8 percent of the total outstanding loans in HCM City. The outstanding loans in the city were about 1,800 trillion dong as of the end of 2017, in which, real estate loans were equal to about 194.4 trillion dong. Compared to the beginning of the year, real estate loans have now increased about five percent out of the total outstanding loans, equal to nearly 10 trillion dong.
Also according to Minh, the State Bank’s HCM City branch has consecutively issued documents warning about risks in credit investment activities, including BOT projects. “Banks themselves have also lowered lending rates to real estate sector. Specifically, after valuing the property based on three factors including market price, land price list issued by the city’s People’s committee, banks often only lent at 30-50 percent of the land value. With these measures, banks have limited risks when providing credit into land and house sectors”, said Minh.
However, economic expert Dr Nguyen Tri Hieu said at this time, banks not only control real estate credit but also need to control the flow of credit line. Accordingly, banks need to classify credit because currently, loans for home purchase, repair under the regulation of the State Bank still belong to individual loans, and consumer loans. Therefore, the current loan amount is still not sufficient to clearly identify risks of real estate credit.
“In order to have a more accurate figure and for management agency to have a more panoramic view, there needs to combine the aforementioned factors, integrating into real estate credit. Only by then, can the cash flow into this sector be controlled”, said Dr Hieu.
Many other people also warned that the numbers of customers borrowing to invest in property are rising rapidly, raising the risk of real estate bubble. Therefore, tightening lending in real estate sector is necessary. In the immediate future, this move will not have good impact on real estate market but in the long term, it will have positive influence because it helps regulate this market, avoiding boosting real estate market to “bubble” state as it used to happen, causing serious consequences.
However, the State Bank also needs to have reasonable policies and tightly controls each segment of real estate market. Accordingly, there only needs to tighten capital flowing into land, high-end apartments. Meanwhile, the middle and low-end segments should not be tightened because it serves the popular class having large housing demand.
