The State Bank is extremely cautious in directing commercial banks to secure real estate credit, limiting lending to high risk areas such as consumer loans, home loans and loans for real estate investors due to concerns about inflation and exchange rate increase.
In some cases, the interest rate for investor loans has increased by 0.5 per cent. For instance, the lending interest rates for investors such as Novaland, Nam Long Investment JSC, Dat Xanh Group in large commercial banks have increased by 0.5 per cent to 11 per cent per year, based on Ho Chi Minh Securities Corporation (HSC).
As a result, investors may face two major risks in terms of their debt. In particular, some investors with foreign currency debts will bear exchange rate risk. Additionally, both bank loans and floating-rate bonds will increase interest expenses if interest rates rise.
Banks with a high real estate risk ratio of banks and low capital adequacy ratio (CAR) will also find it difficult to extend loans to investors, especially with the increase of the loan risk coefficient in real property sector of the State Bank from the beginning of 2018 from 150 per cent to 200 per cent.
Still, based on the data from the National Financial Supervision, this coefficient is not high enough to significantly affect to the loans of real estate investor in general.
Furthermore, Circular 19 regulates to reduce the ratio of short-term mobilized capital used for medium and long-term loans to 45 per cent from January 2018 and to 40 per cent from January 2019.
However, according to the State Bank, the ratio of state-owned commercial banks is 31.32 percent and commercial joint stock banks is 34.49 per cent as of February 2018.
Accordingly, despite the application of 40 per cent ratio in the next year, the banking sector in general still has room for home loans.
In the future, some commercial banks with short-term mobilizing capital for long-term loans will gradually limit lending to the real estate sector in a certain period of time. However, commercial banks such as Vietcombank, ACB, MBBank and HDBank still have plenty of room for lending.
Additionally, investors with strong brands and good financial status can still access bank loans or issue bonds with interest rates much lower than bank loans to mobilize capital.
The increase in interest rate for home loan will have a huge impact on the demand in the real estate market, especially with the demand of investors for rental housing.
According to Dang Phuong Hang, General Director of CBRE Vietnam, the average rental income for apartments in Hanoi now fluctuates between four per cent to six per cent , lower than bank profitability.
Therefore, it is likely that tightening credit will make home buyers consider more carefully about the possibility of bank loans to invest in house for rent.
Along with the limited credit lines for real estate sector, the market is also emerging new trends of capital mobilization of real estate investors.
Particularly, real estate investors are showing a significant reduction in their dependence on bank loans compared to the past. Many investors such as Vingroup, Novaland, Nam Long, Dat Xanh have used retained earnings or issue shares to raise capital for investment.
Vingroup is pioneering in diversifying its capital base and reducing its reliance on bank loans in recent years when issuing a total of $1.4 billion of common bonds to Techcombank, Vietinbank and Vietcombank and has recently announced plans to issue preferred shares with a value of $870 million to fund the project investment.
Besides raising capital from issuing shares and selling products, investors are also using other channels of capital mobilization from IPO (initial public offering), M&A (merging and acquisition) or issuance of international bonds.
These capital mobilization channels will prove to be necessary and effective in the near future.