The central bank OKs loans to property buyers, developers but slaps down tough conditions
The State Bank of Vietnam's recent easing of restrictions on mortgages and lending to property developers is not enough to drag the real estate market out of its extended slump, critics warn.
Cao Sy Kiem, a former central bank governor said: "It is a nominal measure in the context that real estate loans had been squeezed for months. But it will not help improve the sluggish market because only some will benefit."
Under a decision on November 14 the central bank removed certain housing-related loans from the "non-productive" category to which lending is tightly restricted.
Thus banks can now freely lend for home purchase and repairs though only to salaried people and development of low-income housing projects and projects that will be completed by January 1, 2012.
Besides, Kiem said, the mortgage limits were too small, and possibly not enough to buy a house, since the loan is based on the borrower's salary.
Banks would benefit since the central bank mandated earlier this year that outstanding loans to non-manufacturing sectors should not exceed 16 percent of total loans as on December 31, he said.
Following the order, many banks had virtually stopped mortgages and loans to developers. The new ruling considerably eases the pressure on them.
Nguyen Xuan Truong, deputy director of construction firm Vinaconex 7 which has built some mid-level and luxury housing in Hanoi, said the impact of the easing would be limited since it related to low-income housing in which not many developers were involved.
Besides, the provision that banks could lend to projects to be completed in the new year was unrealistic, he said. Such projects would have seen construction completed already and only need the final touches which would not require much money, he explained.
It would be more reasonable to lend to developments to be completed later next year, he pointed out.
Nguyen Duy Trinh, general director of property firm The Win, said the high interest rates would still make it impractical for homebuyers to borrow.
Interest on loans for non-production purposes now stand at upwards of 20 percent.
"Government workers earning VND5-7 million (US$238-333) a month cannot afford the interest rates," Trinh said.
He too did not expect the State Bank's move to improve the liquidity in the property market: "The market is not expected to recover until around next September when the economy shows signs of recovery."
Developers were seeking to sell out to repay their loans whereas buyers were adopting a wait-and-see attitude, expecting housing prices to fall further, he said.
Hurt by the prolonged market slump, several companies had opted for distress sales so that they could repay their debts, he said. "Property prices are likely to fall further. Prices of some land lots in Hanoi's suburbs have plunged by 35-40 percent over last year."
Nevertheless, he said, lower prices alone could not spur demand in the property market since many people depended on mortgages and so could buy apartments only when interest rates decrease.
The government should subsidize mortgages for its employees, he said. "The interest rates should be around 10 percent."
"The most important thing is to increase the liquidity in the market," said Pham Si Liem, deputy chairman of the Vietnam Association of Construction. "If apartments do not sell, the policy of loosening real estate lending could even cause bad debts."
Thus, the central bank should allow lending to marketable housing segments, he said. Developers of medium- and high-priced projects seeking to turn them into low-priced ones for better sales should be allowed to get bank loans, he said.
But analysts admitted even this was a tough task since banks were reluctant to lend to real estate developers due to their lack of liquidity and the depressed property market.
The director of a Hanoi-based bank said his bank was prepared to lend to property developers and homebuyers following the central bank's new ruling, but would follow stringent guide lines to ensure borrowers had the capacity to repay. Since interest rates remained at over 20 percent, banks faced very high risks, he said.
But the trouble is no one has approached it yet for a loan.
Trinh Thi Hau, a nurse working at the National Hospital of Pediatrics, said: "I dare not think of buying a house. A small apartment in Hanoi costs more than VND1 billion ($47,600). My income is not enough to pay the interest, let alone the principal."
Owning a house seems to be a pipe dream for many government workers in the current context of high prices and interest rates.