Get selective with real estate credit: experts

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Not all real estate segments are unworthy of credit and some can actually boost growth in other sectors

Laborers work at a construction site of an office building in Hanoi. Credit for important real estate projects should be sustained, experts and officials said.

There is more to the real estate market than luxury apartments and villas, and credit tightening should not include projects that benefit economic growth, experts say.

In an attempt to control credit, the State Bank of Vietnam has ordered commercial banks to limit lending to non-production sectors, with the real estate and stock market identified as two main examples.

As of June 25, the lending ratio of local banks for non-manufacturing purposes stood at 16.96 percent of their outstanding loans. The central bank's target is to get this down to 16 percent by the end of the year.

This target has to be achieved "at all costs," central bank governor Nguyen Van Giau has asserted.

While the governor has promised that credit would not be tightened to an extent that could cause the real estate market to collapse, experts and officials are still worried about sufficient funding for important projects.

Pham Sy Liem, deputy chairman of the Vietnam Construction Association, said although tightening credit for the real estate sector is the right move, it's necessary to stop treating all property projects as the same.

Many industrial park and residential projects are important for the economy, boosting other sectors like construction and transport, he said. "If there is no investment in real estate, who can we sell cement, steel and machinery to? Even the transport sector will be affected and workers will lose jobs."

Liem said it is time the State Bank of Vietnam and the Ministry of Construction reviewed how much money has been given to each segment of the real estate market. Funds need to be provided for essential projects while lending for others can be cut, he added.

"There is already an oversupply in the luxury segment so this is where credit should be restricted. Low-income and affordable housing, on the other hand, needs more funds because demand is far outstripping supply," Liem said.

Phan Dao Vu, general director of Bao Viet Bank, said there are many kinds of real estate loans.

The central bank should set credit targets for different real estate segments because it would not be fair to cut lending to industrial projects, Vu said.

Deputy Construction Minister Nguyen Tran Nam also agreed that real estate can't be simply considered a non-production sector.

The development of industrial projects should be encouraged, he said, adding that the building of new offices, markets and individual homes also deserves bank loans.

Short term loans need to be sustained for projects that are almost finished and have reasonably priced products, Nam said.

More credit for luxury projects and land speculation activities should be completely banned, because they do not benefit the economy, he said.

The local real estate market has been in a downturn since late April and may continue to face difficulties due to the credit tightening, news website VnExpress reported on Tuesday, citing industry insiders.

Consulting firm CB Richard Ellis said in its report last month that there is a continued demand for international funds as macroeconomic forces put pressure on real estate developers and investors.

The firm also said the coming year will offer opportunities for international investors to enter into sensibly priced agreements as expectations from land and project owners become "more rational."

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