Money poured into real estate
According to the State Bank of Vietnam (SBV), by the end of the first quarter of this year, the credit outstanding balance of the economy exceeded VND9.46 quadrillion, up 2.93 percent compared to the end of last year. Noticeably, real estate credit rose 3 percent, higher than the general credit growth of the economy. Data from the Ministry of Construction also shows that credit outstanding balance for real estate investment and trading activities gradually surged quarter-by-quarter in 2020. Specifically, credit outstanding balance poured into real estate reached more than VND526.39 billion in the Q1 of last year, more than VND580.18 billion in Q2, more than VND606.25 billion in Q3, and VND633.47 billion in Q4.
Many experts said that the low deposit interest rates have urged a large amount of capital to flow into real estate, fueling these investment channels to grow strongly over the past months.
It is recorded that the average home loan interest rate at banks in the first 1-2 years is about 7-8 percent per annum, then being floated with an addition of 2-3 percent per annum, depending on the lender. Home loan interest rates at foreign bank branches alone are 1-3 percent per annum lower than those of domestic commercial banks. This interest rate level is considered reasonable for investment in the context that the real estate market is growing.
Ms. Thao Ngoc, a resident in District 2 in Ho Chi Minh City, said that she had a savings account with VND5 billion in the bank. However, because the deposit interest rate dropped heavily, while the lending interest rate was quite good, she decided to borrow another VND5 billion from the bank to invest in real estate. According to Ms. Ngoc, surfing the real estate wave with a profitability of about 20-30 percent is much better than bank deposits, so she made this decision. However, to get a bank loan, she and her husband had to prove their ability to repay their monthly debt by many different sources of income other than salary, such as rent, and even by the cash flow of recent real estate sales, through the bank account, Ms. Ngoc shared.
Regarding real estate credit, SBV Standing Deputy Governor Dao Minh Tu said that real estate credit is divided into two groups. The first group is real estate speculators and investors, who aim at high-end real estate projects which have low liquidity, so the SBV has the policy of restricting lending to these borrowers. For those who buy houses with low prices and commercial houses that serve their actual needs, banks still have policies to give them loans. Commercial banks always satisfy the essential and legitimate needs of people when they need consumer loans, including real estate consumption. The 3-percent credit growth in the first three months of this year was not seen in all credit institutions, but only in a few banks with faster real estate credit growth than before, Mr. Tu informed.
Strengthening tight control on cash flow
Many commercial banks said that real estate credit is not too alarming because most of the amount of money invested in real estate mainly comes from personal capital, so the real estate market is less risky. According to the leader of a branch of Vietcombank in Ho Chi Minh City, the bank still meets the capital needs for borrowers to buy homes and projects that the bank has associated with or provided credit guarantees. This lender hardly gives loans to speculators, especially in areas with high land prices, showing signs of land fever. “All credit loan contracts for this sector have collaterals and can only borrow as much as 70 percent of the value of the collaterals with extremely close valuations. Valuation is done by a specialized enterprise at the request of the bank. More importantly, borrowers have to prove the cash flow for repayment to get loans, he affirmed.
Mr. Nguyen Hoang Minh, Head of the State Bank of Vietnam - Ho Chi Minh City branch:
Credit flows into real estate in HCMC remain under control
Real estate credit in HCMC has increased by about 2 percent compared to the end of last year, equivalent to the average increase of credit in the city. The real estate loan balance of HCMC-based credit institutions was about VND350 trillion, accounting for 13.5 percent of the total outstanding loans. The management of credit capital flows into real estate is still under control. Because commercial banks had learned the lessons of real estate lending during previous land fevers, so now, commercial banks are very cautious in lending to avoid bad debts, especially in the context that real estate prices climb sharply.
Dr. Le Minh Ngoc, finance-banking expert:
Investors need to calculate carefully when asking for bank loans
Real estate investors, F0 or Fn, who are planning to borrow money from banks to ride the real estate waves, need to take into account the possibility that interest rates will rise in the near future, and should also consider how much the profit, and how their financial endurance in case that they are unable to flee from the market. Even, those who buy residential real estate, especially those who are wage-earners and do not have backup financial resources, should also be cautious, especially if the buying decision is made solely because of the current low lending interest rates, which make the purchase of real estate on installments brighter and more feasible than ever. What they should do is to map out different interest rate increase scenarios and then calculate the monthly installment in comparison with total income to see if they can financially endure or not, and for how long. They should not think that interest rates will be controlled to not rise until things are out of control, it will easily lead to unfortunate consequences.