Though the extent of the housing market recovery is not very clear, a lot of money has started flowing into the sector, clearly accelerating the revival. — VNA/VNS Photo Tuan Anh

Compiled

Though the extent of the housing market recovery is not very clear, a lot of money has started flowing into the sector, clearly accelerating the revival.

The market is now seeing cash flow in from at least five sources and at an increasing rate.

The first source is the banking sector. As of September banks' outstanding loans to the property sector had grown by 10.8 per cent this year.

The banking sector's overall credit growth has only been around 7 per cent.

Some VND3.2 trillion (US$152 million) of the VND30-trillion($1.42 billion) preferential housing credit package has been disbursed.

Lending is expected to increase further as many banks are continuing to announce ever more attractive loans.

HDBank recently offered loans at zero interest for the first 12 months to buyers of apartments at Celedon City.

Loans to the real estate sector accounts for 30 per cent of its total outstanding loans.

Vietcombank offers housing loans at just 7.99 per cent for the first six months.

Many lenders are offering credit not only to home buyers but also to reputed developers.

Techcombank, for instance, has promised to fund the Masteri Thao Dien apartment project in District 2.

A second source of money for the housing sector is foreign direct investment, US$1.24 billion of which had come in as of September, more than double the amount in the same period last year.

It also accounted for 11 per cent of total FDI registered in the first nine months.

Property developers, emboldened by the nascent recovery, are now the third source of funds. Besides borrowing from banks, they are also ploughing their own funds and money from customers.

The last source is the individual investor: Almost 24 per cent of people polled in a recent survey said they have invested or plan to invest in the property market.

Money from kieu hoi or overseas remittances, which is growing at 20 per cent a year and expected to reach $12 billion this year, is also expected to flow into the property sector. The National Assembly has amended the Housing Law, allowing more categories of overseas Vietnamese and foreigners to buy and own houses in Viet Nam, and this is expected to provide a boost.

Cash is also expected to flow into the housing sector next year when Circular No.36/2014/TT-NGNH regulating prudential ratios to be followed by credit institutions and foreign banks takes effect in February.

Banks will be allowed to lend up to 80 per cent of their deposits and provide long-term loans equivalent to 60 per cent of their short-term deposits.

The circular also stipulates a capital adequacy ratio (CAR) of 9 per cent for all banks, and slashes the risk coefficient for real estate lending.

These changes are expected to enable banks to have more money to lend, including to the property sector.

Analysts said, however, that more policies are needed to attract foreign remittances, savings, and property firms' own funds to the housing market.

They also called for strengthening mechanisms to reduce risks for banks lending to the property sector, developing the real estate bond market, creating a legal framework to diversify property-linked financial products, and developing a primary market for real estate products used as collateral.

Gold jewellery businesses

The Agribank Jewelry Company (AJC) has reported a loss of VND1.5 billion ($71,000) for the first 10 months, including VND606.7 ($29,000) million in October alone.

Last year it had lost VND2.7 billion ($128,000).

But AJC is not only the gold jewellery business to be faced with such a bad situation.

According to the HCMC Jewelry Association, 70 per cent of the city's 3,500 gold businesses have closed down or suspended operations due to business difficulties.

In fact, of the 12,000 businesses licensed by the central bank to manufacture gold jewellery only a few are breaking even.

Many reasons are put forward for this, including decreasing demand and the poor designs of domestic jewelry.

Only a few large players like DOJI, PNJ, and SJC are investing in technology and equipment, while most of the rest are too small and use outdated and poor technology and equipment.

Industry insiders explain that jewellery making always requires huge investments in technology, design, and distribution, clearly the Achilles' heel of most domestic businesses whose finances are anaemic.

For instance, the big players spend hundreds of billions of dong on opening glitzy stores especially in Ha Noi and HCM City. But most companies cannot get bank credit since lending to this sector is restricted by the central bank.

The State Bank of Viet Nam has also retained a monopoly on gold imports to stabilise the currency and control inflation.

Because of this, medium and small jewellery makers lack proper gold sources and are forced to use recycled gold or gold without clear origins if they do not want to buy expensive SJC gold bullion.

The lack of technology means despite the great skills of Vietnamese goldsmiths, domestically made products find it very difficult to compete with foreign products, especially on design and price.

Thus, local producers have only a 20 per cent share in the almost US$3 billion jewellery market while the rest is imported mainly from Mainland China, Taiwan, and Hongkong. Chinese jewelry alone accounts for 20 per cent of the northern market.

Analysts say to help local producers withstand the onslaught of imports, they should be allowed to directly import gold and continue enjoying zero export duty.

Jewelry manufacturers need to step up investment in production technology and equipment and training to improve their competitive edge, they add.

CPI falls to 11-year low

The General Statistics Office (GSO) reports that the consumer price index was down by 0.27 per cent month-on-month in November and just 2.6 per cent up year- on-year, the lowest inflation in the last 11 years.

While some economists worry about the effects of such a low rise in prices, others consider it a good sign since the State Bank of Viet Nam will be able to lower the interest rate cap on deposits and then lending interest rates.

Analysts fear deflation – and with it a slowdown in economic activity – is a real possibility.

Since the beginning of this year the central bank has twice lowered the deposit interest rate cap following a consistent easing of inflation.

The SBV governor told the National Assembly in June that the central bank would regulate the rate based on inflationary trends.

Based on November prices, the gap between the inflation and deposit ceiling rates is around 3.14 per cent, meaning the central bank has a good opportunity to continue lowering the ceiling. This will naturally bring about a reduction in lending rates too.

But oddly this does not come as good news for businesses, many of which have yet to recover enough to absorb a funds infusion.

Many banks are ready to offer loans at just 6-7 per cent to companies that are doing well. But the latter just do not want to borrow because they have no plans to expand production at a time when demand remains weak.

The flip side is that some other companies are in dire need of funds and want to borrow, but banks are afraid to lend to them.

Analysts say it is not difficult to understand lenders' reluctance since bad debts are continuing to increase. The two sides need to co-ordinate better to improve the bad-debts issue and free up credit, they say. — VNS