Real Estate Credit For Individuals Under Tight Control

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In the previous cycle, creditors in the real estate market were mostly real estate companies. Loan control for these businesses was complicated in terms of procedures. And although the project was “stuck”, it had little impact on real estate prices. However, in the current cycle, if the real estate market goes down, real estate prices may be affected strongly because individual creditors may be bigger than business creditors. The evidence is that the credit balance for buying and repairing houses accounts for 12.04 percent of total outstanding loans, higher than the balance of real estate business credit, 11.05%.

In Q1/2019, real estate companies on stock exchange witnessed a significant decline in revenue and profit. FiinPro data on business results of 81 listed real estate firms showed that the revenue of this group grew negatively by 10.9%, net profit grew negatively by 3.2%, earnings before interest and taxes (EBIT) grew negatively by 42.5%.

According to Nguyen Quang Thuan, Chief Executive Officer (CEO) of FiinGroup, there are three main reasons for this bad result. The first is the real estate credit control policy. The second are the elated policies such as land rental price. The third is the factor related to the real estate industry cycle. Besides, the decline in revenue and profit of “top giant” Vinhomes is also a big influence factor.

In terms of earnings before interest, taxes and amortisation (EBITA), according to FiinPro’s data, the growth of listed real estate companies dropped by 28.3%.

“If this continues, there will certainly be bad debt in the real estate industry, which will not only affect the stock market but also the banks” warned CEO FiinGroup.

Nguyen Quang Thuan gave more data on the tight control of real estate credit: Outstandings for real estate business currently accounts for 11.05 percent of total outstandings, while consumer outstandings for buying and repairing houses accounts for 12.04 percent of total outstandings. This means that the total real estate outstandings are now up to over 23 percent of the total, equivalent to over $66 billion.

In terms of growth, according to data from FiinGroup, in 2018, credit balance for homebuyers increased by 35%. Meanwhile, credit outstanding for developers doubled.

According to Thuan, the hot growth of real estate credit has made the State Bank of Vietnam (SBV) worry, especially for home loans. This concern is an important reason that SBV has proposed to apply a 150 percent risk coefficient for consumer personal loans with principal outstanding of three billion dong or more, which is actually aimed at personal loans to buy houses from three billion dong or more.

Dao Phuc Tuong, Investment director of APS Asset Management (Singapore) said that when looking at the real estate market, he often looked at three factors: real estate supply, real estate demand and capital for real estate.

“Looking at the real estate supply, we all know that it has decelerated since Q2/2018 until now. The cycle of a real estate company to produce a new project is about two to three years. The recent reduction in supply is due to the lack of clarity on the legality of real estate projects,” Tuong said.

According to Tuong, in the next cycle, if the legal issue is solved, the real estate supply will be faster because many businesses and projects have been prepared.

“I have not seen the signal that supplies can increase dramatically in the next 18 months, except for projects of Vingroup,” he said.

Regarding real estate demand, Dao Phuc Tuong shared: “There are two groups that I follow. The first is foreign demand. In 2017 and 2018, the demand of foreign investment in real estate is huge, especially Korean and Chinese investors. But it is also short-term, not long-term. How long will these demands last? At the same time, he cited CBRE data (a commercial real estate services) to see that the biggest demand is China, followed by Korea.

Regarding Chinese demand, the Chinese government has been tightening the money transfer abroad. In 2017 and 2018, capital from China to Vietnam mostly went through Taiwan and Hong Kong, who already had money there and flowed into Vietnam. This source of capital is not really stable.

The second is domestic demand, according to Tuong, most of which are speculative demand. There has not been much demand for accommodation and use, even in the low-end segment. With regard to speculation demand, according to current SBV policies, the capital would not be abundant. If SBV remained consistent with the goal of ensuring the stability of the banking system, reducing the rate of short-term use of long-term loans, the control of credit flows into speculative demand groups, then the credit capital for real estate would not be much.

“In short, in my personal opinion, the real estate market liquidity is not good anymore. The real estate market has gone into the peak of the cycle. The next step will depend entirely on SBV and the general regulation of the market. But between the previous cycle and this one, if we let the real estate market slide out of the peak, this slip will be faster and deeper than the previous. The reason is that in the previous cycle, most real estate debtors are companies, so if they do not pay their debts, those projects will be blocked but it does not affect real estate prices too much. When the projects stop, the procedures to collect corporate debt are much more complicated than the bank’s individual debt for real estate. The individual is a subject of the current real estate cycle, “said Tuong.

 

Category: Finance, Vietnam

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