Experts fear property crisis as banks tighten credit

By Vu Le July 7, 2022 | 04:34 pm PT

Buildings are seen in southern Ho Chi Minh City in February 2021. Photo by VnExpress/Quynh Tran

The tightening of credit for property development has had a major impact on the market and could cause an industry crisis this year, experts fear.

Since 2020 developers have been dependent on bank loans as the government imposed stricter rules for bond issuance, and the latest tightened policy on credit is a "knock-out blow" to an already weakened market, Huynh Phuoc Nghia, a senior consultant at Global Integration Business Consultants said.

The State Bank of Vietnam in April ordered banks to tighten lending to developers, especially in areas where "land fever" was reported, to mitigate risks.

This has caused a cash crunch, forcing many developers to put expansion plans on the back burner.

Quoc Cuong Gia Lai company said for example it would slow down investment in the second half of the year and wait for property policies to be streamlined.

Nghia said buyers have also been holding back amid lack of bank loans and this could cause a real estate market crisis this year.

Developers jacked up prices amid the property fever last year and earlier this year and now get to choose whether to continue with that or try to meet the actual demand there is with appropriate prices, he said.

"The choice of developers and the reaction of consumers will determine the severity of the crisis in the next six to 12 months."

A price drop has already been occurring.

Tran Khanh Quang, CEO of developer Viet An Hoa said since May prices have been cut by around 10 percent.

In the next six months there could be more developers seeking to dump their inventories for cash, meaning they could sell at even lower prices or even losses, and this could lead to a crisis, he said.

Data from his company shows that in the last three years 80 percent of property buyers have been investors buying for profits and not for housing use, and of them 70 percent used bank credit.

This means they would soon have to sell their assets even if it means losses, Quang added.

Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association, said at a recent forum that developers could mobilize funds from buyers to build, but this is only possible if construction progress is on schedule.

Many legal issues are stalling property projects, making developers unable to raise money from buyers or banks, he said.

These need to be resolved as soon as possible to ensure the real estate market is sustainable and steady, he added.