Vietnam's real estate firms say credit tightening plan will imperil recovery

Thanh Nien News

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Apartment buildings in Ho Chi Minh City. Photo: Dinh Son Apartment buildings in Ho Chi Minh City. Photo: Dinh Son


Real estate businesses in Ho Chi Minh City have asked the central bank to reconsider its plan to tighten lending for the sector, saying it will adversely affect the market which is still in its first stage of recovery, news website Saigon Times Online reported.
In a letter to the central bank, the city's real estate association HoREA said the bank should delay revising credit rules as there are no signs of a speculative housing bubble. 
The central bank is seeking to prohibit banks, including branches of foreign banks, from using more than 40 percent of short-term deposits for medium and long term loans, compared to the current rate of 60 percent. It also wants to raise the risk weight of loans to real estate businesses from 150 to 250 percent.
The proposed rules are part of banking amendments which will take effect next year, if approved.
The central bank made the move apparently out of concern that the real estate sector can overheat. Lending for the sector grew 18 percent to VND360 trillion (US$15.87 billion) last year, compared to the average growth of 14-15 percent in 2012-14.
However, HoREA has argued that that it was normal that lending to the property sector increased recently, considering that the market started recovering at the end of 2013 after a long downturn.
Moreover, it said, speculative behavior which was blamed for the property bubble in previous years is rare.
In Ho Chi Minh City, for instance, speculators accounted for around 15 percent of buyers last year, compared to around 70 percent in 2007 when the bubble happened, according to HoREA.
Since Vietnam's property market relies heavily on bank loans, credit tightening will cause negative impacts on developers, investors and first home buyers, the association said.
If the central bank believes that rules on lending activities need to be changed, it should at least let banks use half of their short-term deposits, HoREA said.
It also urged the central bank to keep the risk weight of loans to real estate businesses at 150 percent. The weight was originally set at 250 percent, but was reduced to 150 percent in January last year.
Many developers and investors told Thanh Nien they are expecting a gloomy future because of the proposed rules. 
Le Huu Nghia, director of Ho Chi Minh City-based Le Thanh Real Estate Company, said the rules will possibly reduce loans for the sector by at least 30 percent.
Bui Cao Nhat Quan, vice chairman of Novaland Group, said if credit sources dry up, the developer will need to reduce the number of new housing projects soon. 

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