Even though the central bank’s plan to restrict real estate loans is “necessary” to ensure a safe and healthy banking system, such a move should be taken gradually to avoid shocking the property sector, officials and experts say.
The State Bank of Vietnam is collecting feedback on its newly drafted amendments to a circular on lending activities that will prohibit banks from using more than 40 percent of short-term deposits for medium and long term loans, compared to the current 60 percent. The central bank also wants to raise the risk weight for real estate loans from 150 to 250 percent on concerns that the housing market can overheat.
If the central bank decides to move forward, these new rules will take effect next year.
But Vu Quang Phan, deputy head of the Housing and Real Estate Market Management Bureau under the Ministry of Construction, said the central bank should not be so worried because there are no signs of a housing bubble.
“The real estate market has just overcome hard times and is still recovering. There's no sign of a bubble yet,” Phan said during a conference organized in Ho Chi Minh City on Tuesday by Thanh Nien Newspaper and Thanh Nien Newspaper Joint Stock Company.
“The central bank’s intention to ensure a safe and healthy banking sector is good. But it should have a roadmap to reduce lending gradually, otherwise the property market will be hit hard.
“We suggest it should lower the maximum ratio of short-term funding used for medium and long term loans from current 60 percent to 50 percent first,” said Phan.
Regarding to the central bank’s plan to increase the risk weight of loans to real estate businesses from 150 to 250 percent, Phan said that is a policy that should be applied only on a case-by-case basis.
Developers with a good track record should not face credit restrictions, he said.
Dr. Bui Quang Tin, a lecturer from the Ho Chi Minh City Banking University’s Business Management Faculty, agreed that the central bank’s proposed amendments will badly affect the property market.
“If the new rules are implemented, banks will surely make it harder to get real estate loans. Not only speculators but all real estate developers and genuine homebuyers will be affected,” said Tin.
He also urged the central bank to cooperate with other relevant agencies in creating favorable conditions for other funding channels, such as real estate trust funds and housing savings funds, to be established.
Vietnam’s real estate sector currently depends heavily on loans from banks and funds from customers. And with home prices remaining beyond the reach of most of the population, many homebuyers also need to take out large loans from banks.
Outstanding loans to the sector grew nearly 26 percent year on year to VND393 trillion (US$17.42 billion) at the end of last year, according to the central bank.