Banks tighten real estate loans amid land fever in Vietnam

Many lenders have recently increased interest rates and tightened lending for real estate loans due to concerns about bad debts amid land fever in Vietnam.

They have increased mortgage rates by 1-2 percentage points over the past few months.

Viecombank and OCB, have set interest rates of around 10.5 percent and 11.5 percent respectively for real estate loans over 12-24-month terms. Meanwhile, other lenders offer rates of 12-12.5 percent.

Banks are also offering loans at no more than 70 percent of the property’s value, instead of the previous 80-90 percent. They attribute tightened lending to concerns over market risk as real estate credit risk has jumped from 150 percent to 250 percent in past few months.

Currently, State Bank of Vietnam only allows banks to lend 40 percent of short-term mobilization funds for long-term loans, instead of 60 percent in the past. However, real estate loans are usually long-term loans.

Banks have also tightened mortgage lending in some of Ho Chi Minh City’s suburban districts because of steep land price hikes compared to last year, like an 85.7 percent hike in Binh Chanh, 170 percent in Can Gio District and 140 percent in Cu Chi District.

Provinces around HCMC are also experiencing the same trend with land prices on the main streets of Bien Hoa City in Dong Nai Province now costing nearly as much as in some urban areas of HCMC. Even land prices at Trang Bom District have risen by up to seven times in the past 1-2 years.

Vietnam’s central bank has also ordered lenders to tighten control over investment loans intended for the stock and real estate markets, warning of bad debt risks.

The real estate sector reported 8.56 percent in credit growth last year, compared to 12.86 percent in 2016. However, Nguyen Thi Hong, the bank’s deputy governor, said it will maintain strict control this year as Vietnam's economy has become more open and vulnerable to fluctuations on the global market.

Bad debt in Vietnam's banking sector, mostly incurred due to a slowdown in the country’s real estate market in the early 2010s, had been cut to 2.34 percent by the end of September 2017, down from 2.46 percent at the end of 2016, according to the State Bank of Vietnam.