Le Thanh Trade & Construction Company Ltd (HCMC) had completed the foundation of a social housing project worth VND2 trillion, but then had to pause the execution because it could not access bank loans.
“Social housing is the most difficult segment among all real estate sectors to get bank loans,” said Le Huu Nghia, director of the company, at a recent workshop.
Problems stem from the VND145 trillion credit package dedicated to social housing. This program, implemented by nine commercial banks, offers lower interest rates than the market, and applies to both developers and homebuyers, with loan terms up to 20 years.
Currently, the preferential interest rate for social housing projects is 6.1 percent. However, Nghia said his company has been denied loans by multiple banks. Many lenders explained that deposit rates remain high, and lending at 6.1 percent would result in losses.
Even when the company proposed borrowing at commercial housing rates, banks still refused. They cited the reason that they might later be held accountable by state management agencies for lending at high interest rates to the wrong target subjects.
This situation has left social housing developers like Le Thanh struggling with capital shortages. Nghia warned that without timely solutions, construction delays could jeopardize HCMC’s targets of building 28,000 social housing units this year and 30,000 units next year.
“Banks need to share the burden with businesses and the public. Regulators should allow more flexibility in lending rates. Social housing developers are willing to borrow at commercial interest rates. Even if this pushes up prices, it is still better than having no access to capital,” he said.
Le Hoang Chau, chair of the HCMC Real Estate Association (HoREA), said that the Government and the State Bank of Vietnam (SBV) have called on banks to save costs and reduce lending rates, yet banks still achieve excessively high profits.
He said that during the Covid-19 period, profits of the entire banking industry were about $7 billion/year, while the average is at $9-10 billion/year. “With such large profits, how do banks share difficulties with the people and the economy?”
Additionally, the HoREA representative added that banks only provide loans at 70 percent of the value of mortgaged real estate. For example, a property worth VND100 billion is only appraised by the bank at VND70 billion, and they lend 70 percent of that valuation, corresponding to a loan of VND49 billion.
In case of a market recession, real estate is appraised even lower. If debts cannot be paid, assets also risk being seized according to regulations. Therefore, the risk for banks is significantly reduced.
Risks of single capital channel
Associate Prof Nguyen Huu Huan, of the University of Economics HCMC, said despite rising interest rates and credit tightening, domestic businesses have become accustomed to volatility and are no longer as surprised as before.
However, their major limitation remains dependence on bank credit. Without changing the capital structure, businesses will find it difficult to develop sustainably as credit tightening and loosening cycles tend to repeat every 4-5 years.
“Lessons from the previous period show the risks of relying on a single capital channel,” he said, emphasizing that the core solution is the need to develop the capital market, especially corporate bonds.
Developing this capital market is not just for real estate but for the entire economy. Diversifying capital mobilization channels is an urgent need in the coming time.
Nguyen Duc Thuan, director of Strategy and Investment at HASCO Group, offered three proposals:
First, management agencies should consider policies for businesses to re-access credit flows. There are many pending projects facing difficulties, or in a state of “clinical death” that need restructuring. Therefore, when a unit participates in restructuring a business and has customers placing orders for real estate products, this new unit needs quick access to credit to continue the project.
Second, banks should perform credit disbursement based on actual costs and business operations once the unit can meet all documentary conditions. In particular, strong disbursement is needed at the initial stage of project implementation.
Third, state management agencies need to promote the development of other capital markets, such as the corporate bond market, which is currently small in scale. This is a necessary capital market for real estate businesses alongside promoting the development of investment funds in the real estate sector.
Hong Khanh