Reality of FDI Investment for Real Estate

3 Aug
Vnre.blogspot.comThe State Bank of Vietnam (SBV) said the credit growth was over 8 percent as of end-May 2010 while the full-year target was 25 percent. Outstanding real estate loans totalled VND192 trillion (US$10 billion), up 4.54 percent from the start of the year. Notably, many large foreign-invested property projects are using loans from Vietnamese banks, not foreigners.
Domestic enterprises in dilemma

Mr Nguyen Ngoc Bao, Director of Monetary Policy under the SBV, said the recent volatility of property market did not originate from credit activities. However, the central bank will closely monitor real estate lending in order to avoid the risk of real estate bubble and more importantly to ensure the safety of banking system.

Sharing this standpoint, Ms Duong Thu Huong, Secretary General of the Vietnam Banks Association, pitched the rationality of curbing real estate loans. The tightened property lending backed by the Government and the State Bank is aimed to remind lenders of channelling capital into manufacturing and commercial activities while clearing adverse impacts off the banking system as well as the economy in case the real estate rubble inflates.

However, some experts argued that tightened credit control on property market is now not necessary. For banks, more real estate lending in the context of high interest rate helps them achieve credit growth purpose, and, in fact, property loans are carefully appraised by banks and imposed high interest rates. For real estate companies, the credit squeeze will send many to trouble. Giving reasons for this argument, Dr Vo Tri Thanh, Deputy Director of Central Institute of Economic Management (CIEM), said: “With the credit growth of nearly 8 percent in the first five months and real estate loans accounting for 10 percent of total outstanding loans, or an equivalent of VND192 trillion, there is still room for real estate lending.”

He noted that the fixed proportion of 10 percent and 15 percent for real estate lending (over outstanding loans) is difficult, citing that different macroeconomic conditions will lead to a different lending proportion. We should not impose the same rate for many years.

Truth of FDI capital

Recently, concerns of real estate lending intensified as there is information that costly foreign-invested projects are using loans provided by domestic banks. Foreign investors reportedly need to invest only US$50-10 million to carry out the projects because they can lend latter. For example, the US$170 million Mulbert Lane project in Mo Lao (Hanoi) borrows US$60 million from Vietinbank. Indochina Capital borrowed US$44 million from Vietcombank to build its Indochina Plaza Hanoi and US$39 million to carry out Hyatt Regency Danang Resort & Spa. Investment capital for Indochina Riverside Tower project in Da Nang and The Nam Hai in Quang Nam province is borrowed. Even, Phu My Hung borrows US$63 million from five Vietnamese banks to construct Crescent Mall. This is against Vietnam’s expectation of attracting foreign finances to supplement domestic savings shortfall and increase foreign exchange reserves.

Many begin to worry about financial capacity of foreign investors as well as corollaries on the real estate market in the near future. In the first five months of 2010, foreign investors registered to invest US$7.5 billion in Vietnam, including US$1.28 billion for real estate, accounting for 17 percent of total registered capital. In fact, Vietnam does not have any method to accurately calculate foreign investors’ investment expenditure. Worse, the borrowing of foreign investors will take away the chance of domestic companies in accessing credit sources for development.

It is undeniable that foreign investors are playing an important part in socioeconomic development but it is an alarm when they use domestic resources, instead of exotic capital.

Reported by LuongTuan/ VCCI News

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