Easing finance conditions for the real estate sector

Following more than a year of efforts to "unblock" the real estate market, the Prime Minister issued three strong directives in October, including Directive 993/CD-TTg on the continued implementation of robust measures for the safe, healthy, and sustainable development of the real estate market, which contributes to overall socioeconomic development.

However, HoREA has discovered several flaws and impediments in the regulations governing the procedures and processes for real estate project financing.

Easing lending conditions

Circular 39/2016/TT-NHNN, in particular, specifies the requirements for qualified clients to borrow money. In practice, however, various commercial banks interpret and apply the lending requirements differently, particularly when it comes to the need for capital and a solid financial strategy to repay the debt.

As a result, Mr. Chau believes that it is critical to innovate commercial banks' understanding and implementation, moving away from standardization and slightly relaxing lending conditions, in order to support and facilitate better credit access for real estate project investors, commercial housing, homebuyers, and investors in today's challenging real estate market.

The fundamental fault in understanding and implementing the investor's financial capability to repay the loan is that practically all commercial banks have not actually focused on analyzing the project's cash-generating potential to demonstrate the investor's financial capability to repay the debt. Instead, they are primarily concerned with the loan's collateral assets. Almost 70% of collateral assets for credit loans are real estate, residences, and land, according to data, generating hazards for credit institutions and legal enterprises.

Commercial banks and businesses may cooperate to significantly inflate the value of collateral assets for lending purposes if the situation of friendly enterprises and behind-the-scenes activity is not handled. When these loans default, the bank's ability to recover capital is severely constrained.

As a result, comparable to the implementation of reasonable capital utilization restrictions, HoREA recommends that credit institutions structure credit approval around the notion of dividing duties between the appraisal and loan approval phases. Customers must agree with lending institutions to employ independent consulting units to analyze the viability of investment projects, including a review of project cash flow, with the client footing the assessment expenses. This serves as a foundation for financial institutions to approve credit. This technique is appropriate and fits the needs of respectable enterprises with financial resources and large-scale investment projects.

Special credit policies for feasible projects

It is recommended that credit institutions apply customer loan conditions deemed to have clear financial circumstances to all credit customers, not only the five priority categories.

HoREA observes that Circular 39/2016/TT-NHNN, Article 5, Clause 7, specifies circumstances of consumers borrowing from credit institutions at the interest rates stated in Article 2, Clause 13 of this Circular.

Customers evaluated by credit institutions as having transparent and healthy financial situations apply only to customers from the five priority groups (agriculture, rural areas, export-oriented businesses, small and medium-sized enterprises, supporting industries, and high-tech applications). However, the prerequisites for credit institutions' evaluation of clients with transparent and sound financial circumstances do not apply to all other organizations, particularly major firms, including groups and large-scale real estate businesses.

Now, Prime Minister Directive 993/CD-TTg dated October 24, 2023, mandates the State Bank to instruct credit institutions with specific credit promotion policies for feasible real estate projects to promptly deploy and drive growth, therefore increasing the real estate market.

HoREA believes it is critical to extend consumer loan terms deemed transparent by credit institutions to all other firms, particularly huge organizations such as groups and large-scale real estate businesses.