Real estate loans shouldn't be entirely tightened

Many banks have recently tightened lending restrictions for real estate. Photo: Quoc Tuan

>> Tight control over real estate credit to mitigate risks

Many banks have recently tightened lending restrictions for real estate, highlighting this market's precarious recovery from the COVID-19 pandemic.

Fear of real estate risks

Although the real estate market has helped the Vietnamese economy by bringing in resources and generating sizable fixed assets, there are still many drawbacks, such as price blowing and speculation, which are quite common and frequently cause this market to experience an uncharacteristically hot-cold fever. Therefore, lending for real estate has a lot of potential hazards. Additionally, the majority of bank loans are short-term, while 94% of real estate loans have terms between 10 and 25 years. As a result, there could be a liquidity risk if banks don't balance prudently.

Because of these risks, the State Bank of Vietnam (SBV) designated real estate loans as a high-risk group with a risk coefficient of up to 200 percent, while gradually lowering the ratio of short-term capital for medium and long term loans to 34 percent as of October 1, 2022, and further dropping it to 30 percent as of October 1, 2023. The SBV also frequently advises financial institutions to rigorously regulate loans made to high-risk industries including the real estate sector.

A reasonable policy needed

While many experts agree that real estate loans should be regulated, they do not think they should be entirely tightened.

Dr. Can Van Luc, a financial analyst stated that if bank loans for real estate are restricted, projects won't go incomplete, property liquidity will decline, causing an increase in bad debts at banks, which will impede the momentum of the economic recovery.

"Other financing channels must be opened up in addition to bank loans, such as FDI, trustworthy funds, investment funds, pension funds, and housing savings funds... A well-developed corporate bond market in particular would offer very strong medium- and long-term funding for real estate enterprises”, Dr. Can Van Luc noted.

A financial analyst who agreed with this viewpoint also suggested that banks’ lending standards for extremely speculative and high-end real estate segments should be tightened. However, it is essential to promote bank lending for social housing and affordable housing initiatives, particularly for individuals who want loans to purchase homes for habitation. By lowering real estate prices and improving property liquidity, this will help the real estate market grow healthier and more balanced.