Real Estate Credit: Still Waiting

12 Aug
VNREAccording to statistics from large real estate businesses listed on the Stock Exchange, currently these businesses are in debt by over VND30,000 billion, while their available capital is very small, accounting for only about 8.6 percent of the debt. One property dealer even borrowed nearly VND2,000 billion while its available cash is only about VND30 billion. Most property developers now depend heavily on bank loans for their survival.

Expecting an adjustment of credit policy

Not only small and medium businesses, but also large businesses and corporations are affected by the tightened monetary policy. Representatives of Housing and Urban Development Group of Vietnam (HUD) said that never has real estate investment been as difficult as now. Credit tightening policy of banks has severely affected the input cost leading to the decline and freezing of the real estate market.

Lack of capital is common in most real estate businesses. Vietnam Construction and Industry Group expressed that at present, investors lack capital for major construction projects, resulting in slow progress, the growing debts beyond their financial capacity. Meanwhile, interest rates of credit organisations are too high and projects are sluggish.

According to the Ministry of Construction, credit for real estate should continue to grow. This is especially important for businesses. Especially, the credit for each real estate segment will be adjusted. Monetary policy and credit policy are not likely to be changed much, but this does not mean there is no more flexible credit adjustment.

While not giving any specific time for this issue, the Ministry has directed local construction departments and branches to pay close attention to and be active in the classification and review for making adjustment criteria with banks.

Also to find ways to increase credit, real estate businesses are looking for all ways to prove that this sector is not really a non-production sector. The Real Estate Association said that this sector includes both production and non-production. Investors being given or leased land for investment who build housing units, industrial parks, and trading offices is considered production. From their original land, they make products for society, create jobs and economic growth. However, non-production activities in the real estate market, for example when investors launch products into the market and to secondary investors for profits. So, review is required to determine how much is production and how much is non-production.

Mobilising capital from people

The real estate market in 2011 was a wake-up call for most real estate businesses depending too heavily on the banks. According to some economists, in a few years, the real estate market will still face many difficulties, especially problems of capital. Therefore, to survive and develop in this environment, businesses need to restructure the financing of their projects. Representatives of the Real Estate Association recognised that the foreign exchange market, gold and stock markets also have many drawbacks, so the real estate market should also be able to attract capital.

People’s resources are largely available, approximately estimated at about US$20 billion. It is key that Vietnam lacks the tools and businesses themselves have not built confidence for people to invest money. Based on this, businesses must look at capital structure in the real estate business and set up new, hopeful orientations, but wait for the others.

Recently, despite the difficult market, investors have had the confidence to commence building projects. There is nothing more important than good project preparation and good investor capability. Besides, some businesses have successfully issued bonds to mobilise both domestic and foreign capital for project development. This is a new model with quick efficiency. However, it requires businesses to have a “good profile” – the project must have the potential to convince investors.

Meanwhile, the Ministry of Construction is proposing various forms, such as Housing Saving Fund and Real Estate Investment Mandating Fund. These mobilising forms have demonstrated effective features in many countries and proved to be suitable to Vietnam when people can contribute a small amount with long term interest to invest in real estate.

Reported by Luong Tuan | VCCI News

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