"Our real estate market depends heavily on banking credit and capital mobilised from buyers, with the latter being mainly sourced from banking credit," HOREA's proposal said.

HCM CITY (Biz Hub) — The HCM City Real Estate Association (HOREA) has proposed the State Bank of Viet Nam (SBV)'s regulations on lending limits and capital adequacy ratio requirements for credit institutions, including branches of foreign banks not be changed at the moment.

The proposal was made after the SBV had released draft amendments to Circular 36/2014 which states that the credit institutions could use 60 per cent of their short-term funds to provide medium-and long-term loans and the credit risk ratio of the institutions' receivables from the real estate sector is 150 per cent.

The draft states that the ratio cap for using short-term funds to provide medium- and long-term loans will be 40 per cent, down from the current 60 per cent. The credit risk ratio of the institutions' receivables from the real estate sector will rise to 250 per cent from 150 per cent.

The amendment is meant to restrain the liquidity risk and the mass of credit flow into the property sector.

However, according to the HOREA, the regulations have been in effect only one year and are having a positive impact on the economy and the growth of the real estate market.

The macroeconomy is growing with inflation kept under control, it said.

HOREA's proposal said the risk of a real estate bubble this year could be reduced if the State takes effective measures if speculation appears, such as antispeculation taxation, credit tools and other tools related to land and land-usage planning.

HOREA expects the ratio cap will be 50 per cent, not 60 per cent in case the amendment is not delayed.

Commercial banks are hoped to take further steps in considering the feasibility of property projects and prestige and mortgages of the investors. Supervision of the lent capital flow should be tightened to ensure effectiveness and safety, the association recommended.

HOREA is afraid that those changes may have negative impact on the development of the real estate market, which started bouncing back from its crisis two years ago. The impact could affect property developers, traders and low income end-users.

"Our real estate market depends heavily on banking credit and capital mobilised from buyers, with the latter being mainly sourced from banking credit," HOREA's proposal said.

Economist Dinh Tuan Minh said the amendment on the cap ratio was the correct policy to ensure banking system security because the over-use of short-term funds for long-term loans could cause liquidity problems.

The draft change on the credit risk rate, however, is an intervention in the operation of commercial banks.

He told Thoi bao Kinh te Sai Gon that commercial banks should be allowed to decide mortgage levels for specific sectors, while the central bank could provide a common floor rate for all sectors.

"The State Bank's intervention, including credit restraint, means a higher interest rate for this sector," said Minh, adding that it would increase costs in the real estate business.

Thus, investors would weigh the pros and cons of their projects and buyers would face a more difficult access to loans, which would lower demand from buyers, both end-users and traders," he said.

In fact, many buyers of apartments still under construction have used them as mortgage to borrow money from banks for purchases, while the developers also mortgage the projects for their bank loans. That means a project is mortgaged twice.

As of last September, outstanding loans to the real estate sector stood at more than VND358 trillion (US$16 billion), a growth of 14.59 per cent, 2.5 per cent higher than the general credit growth rate.

The amount accounted for more than 8 per cent of the total outstanding loan value. — VNS