As banks increase lending to property sector, fear of bubble returns

By Ngan Anh, Thanh Nien News

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Motorcyclists ride at a residential quarter in Hanoi. Photo credit: AFP Motorcyclists ride at a residential quarter in Hanoi. Photo credit: AFP


Many banks have stepped up lending to the housing sector amid a revival in the market, bringing uncomfortable reminders of the property bubble that burst not too long ago.
Techcombank and ACB are offering loans of up to 70 percent of an apartment’s value to buyers for 20-25 years. Vietcombank has set aside VND10 trillion (US$458.5 million) for lending to home buyers.
As of May end outstanding loans to the property sector were 10.89 percent higher year-on-year, compared to an overall 5 percent credit rise for the banking sector, deputy governor of the central bank, Nguyen Thi Hong, said.
Pham Sy Liem, deputy head of the Vietnam Federation of Civil Engineering Association (VFCEA), said banks are lending more to the sector because it is reviving.
In the first half of this year the market saw more than 14,000 transactions.
Earlier this year Vietinbank, the country’s largest partly private lender, signed an agreement with property firm Dat Xanh to lend VND20 trillion ($952.3 million) between 2016 and 2020.
BIDV, the second-biggest bank, has promised to lend VND5 trillion to another property firm, Hung Thinh, for its projects.
This rapid credit growth has raised concerns about a bubble, the last of which saddled the country’s banking system with plenty of bad loans.
Most developers operate mainly with bank loans and face the risk of collapse if banks stopped lending to them, a member the National Council for Fiscal and Monetary Advisory said, requesting not to be named.
Many banks thus have to continue to lend to keep the businesses afloat and repay their existing loans, he said.
Minister of Planning and Investment Bui Quang Vinh said at a recent meeting that the growth in lending to the property sector is a good indication the market is rebounding. But he warned about the risk of a bubble.
If property loans continue to increase, the bad debts situation could worsen, he said, adding the government wants to strengthen control over debts.
The State Bank of Vietnam recently announced that bad debts had jumped to 4.03 percent of outstanding loans in April from 3.93 percent in March, and 3.86 percent in February, news website VnEconomy reported.
Vietnam is recovering from a toxic debt situation and real estate slump caused by unrestrained lending and costly investments by state-run firms in non-core areas.
Its non-performing loan ratios have been among Asia's highest.
Hong of the central bank said lending to the property sector is not too big, accounting for only 8.3 percent of outstanding bank loans. Loans are given not to speculators but to housing buyers and developers who have a genuine need, and so there is no need to worry about the high growth in lending to the sector, she assured.
The central bank is carefully monitoring the situation and would deal with any arising situation, she promised further.
Liem of the VFCEA said the bubble of a few years ago is unlikely to recur since the economy is strong this time.
Vietnam's economy grew by 6.28 percent in the first half of this year, racing along at its fastest rate since 2008, according to the General Statistics Office.
The government has stepped up efforts to clean up bad debts in the financial system, some of them tied to property.
High-end segment emerges
The Hanoi market saw nearly 4,900 apartments launched for sale in the first quarter of this year, almost two times the number a year earlier, according to property consultant CBRE Vietnam.
Ho Chi Minh City saw 5,150 apartments launched for sale, up 2.6 times.
Marc Townsend, managing director of CBRE Vietnam, said, “After many years of frozen realty market, people start to witness the strong return of property projects which are not only bigger in scale, but also define higher segment and has more complicated planning."
Developers have begun building in Hanoi and HCMC a slew of mid- and high-priced projects in which apartments mostly cost VND2-3 billion.
Besides the economic factor, the policy changes that are set to allow greater foreign ownership of property are also expected to help revive the market.
The new policies should encourage foreign investors, Nguyen Huu Cuong, chairman of the Hanoi Real Estate Club, said.
Foreigners with a valid visa and foreign companies and international organizations operating in Vietnam are permitted from July 1 to buy houses and apartments.
Until now only foreigners married to Vietnamese and those deemed to make significant contributions to the nation’s development were allowed to buy houses in the country.
The new rules allow maximum foreign ownership of 30 percent in any apartment building or 250 houses in a ward.
Investors who have done business in Vietnam for many years like Lotte, the nation's biggest fund manager VinaCapital Group, and Indochina Land, a subsidiary of London-listed fund Indochina Capital, have recently increased their investment in property, while new ones like Creed Group have entered the market.
Demand for mid- and high-priced apartments could rise strongly and act as a driving force for a market recovery this year, an industry insider said.
High-end apartments are now well designed, better meeting the demands of young customers with high incomes, he said.
Apartments of international standards and with a full range of amenities are also preferred by foreign customers, who would invest more in housing once the new laws come into effect, a spokesperson property consultant Indochina Land said.
Real estate ranked second behind only industry in attracting FDI last year.
It saw inflows of $2.54 billion, or 12.6 percent of total FDI, according to the Foreign Investment Agency.

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