Unlocking real estate credit constraints

In the first 9 months of this year, real estate business credit has grown by 21.86%, surpassing the overall credit growth rate and the same period last year.

Persistent Paradox

There is a contradiction as real estate enterprises and investors continue to complain about financial constraints, liquidity pressure, and capital availability. This is exacerbated by the fallout from Van Thinh Phat and SCB's "black swan" occurrence at the end of 2022, as well as the bond genesis tale involving FLC and Tan Hoang Minh.

The real estate industry is experiencing liquidity and cash flow issues. The essential element of the contradiction, however, is that real estate borrowing has not reduced. Clearly, the State Bank of Vietnam (SBV) has frequently said that real estate financing is not being restricted. Support policies for the real estate market and businesses, as outlined in Circular 02/2023/SBV (debt structure, rescheduling, and debt extension), and Circular 03/2023/SBV, which allows credit institutions to buy back corporate bonds without waiting a year, contribute to the market's liquidity. At the same time, they aid in the psychological stabilization of issuing companies and investors prior to the stress of bond maturity.

From the standpoint of banks, the circulars have helped to reduce some of the barriers to the continued growth of real estate business capital. According to Ha Thu Giang, Head of the Credit Department of Economic Sectors at the State Bank of Vietnam, the total outstanding real estate credit at banks reached VND 2.74 million billion by the end of September 2023, an increase of 6.04% from the end of 2022, accounting for 21.46% of the total outstanding debt for the economy. Real estate credit for consumption/self-use reasons accounts for 64% of total credit in the real estate industry, while debt for real estate commercial operations accounts for 36%.

According to SBV executives, this might show the success of the government's efforts to resolve challenges and hurdles in the real estate market.

There has been a large growth in the ratio of real estate business loans in several banks with an ecosystem link or owning corporate bonds. This is demonstrated by the stories of Techcombank, VPBank, MSB, MB, and others. As a result, there is an increase in capital for investors (accumulated loans) and new funding. In other words, money in real estate grows, but it is for business investment, with monies "trapped" in land and projects that have yet to be released. The irony is palpable, but comprehensible, given that the real estate market is stuck and banks must help in a "debt nurturing" path.

Easing Difficulties

According to SBV data, the system's overall credit growth reached 8.21% by November 22, 2023, which was lower than the initial objective established at the start of the year. Credit growth varies per credit institution, forcing SBV to control the credit growth objective throughout the system, from institutions that are not using the whole credit growth quota to those that require more credit expansion.

As a result, on November 29, SBV revised the credit growth objective. organizations with loan balances that exceed 80% of the authorized quota, organizations with interest rate reduction programs, and groups that meet the SBV financial safety indicators will have their quotas expanded, or the credit valve will be opened. Groups who do not fall into these categories and have not fully utilized the credit room granted will not obtain further quotas because they are excess.

Examining the groups most likely to be awarded credit quotas based on the direction of loan balances surpassing 80% of the credit ratio allocated, it is discovered that this mostly applies to banks with strong credit growth, such as VPBank, MSB, LPBank, Techcombank, MB, HDBank, and so on. As previously stated, certain banks in this category have made significant real estate loans. However, with a predicted rise in mobilization, it is possible to argue that capital for real estate investment would benefit from these overall dynamics.

The question is whether commercial real estate loans will continue to expand. On the bright side, investors will have more finances to reduce short-term payment pressures; investors will have more funds for project development, promising to kick-start the housing market release. On the negative side, although short-term payment pressure helps investors survive, does it genuinely prepare the road for them? Furthermore, who will absorb the increased housing supply?

As a result, the market forecasts a focus on credit for consumer reasons, self-use, including loans for home renovations, in addition to the hope that unlocking credit will push cash into production and consumption to satisfy year-end demand. This, without a doubt, is dependent on the loan interest rate and the stability of preferential loan interest rates.