Vietweek: Amidst increasing bad
debts in many sectors, the State Bank of Vietnam has decided to loosen
lending to real estate sector. How do you assess this move?
Bui Kien Thanh: Most real estate
projects in Vietnam are in the luxury segment where customers are mainly
speculators. Few people with real demand can buy such houses to live
because of their high prices. The high-end houses are mainly traded
among speculators. I think the state would not gain any benefit from
encouraging this property speculation.
To facilitate people buying houses to
live, it's time for us to restructure the whole real estate sector. We
should consider housing prices that medium-income earners could afford.
The prices I think should be less than VND10 million (US$475) per square
meter. The credit regulations should also be changed to allow
longer-term loans, may be 10-30 years, and the interest rate should be
In other countries, the annual interest
rates are 5-6 percent. In the US, it is just 3-4 percent. With such
interest rates, people can afford to buy houses.
Many banks are facing bad debts after
they granted big loans to the real estate sector. Could this happen
again as banks expand loans to property projects?
It will be difficult for this to happen.
Many developers cannot continue to borrow capital from banks as they
have already taken out huge loans from them and now do not have enough
assets as mortgage for new loans. They have to repay existing loans
before accessing new ones, and liquidity is very tight right now.
Others will not dare to borrow because of
worries they will find no customers for their housing products amidst
the gloomy real estate market.
Thus, the central bank's decision can
only be a small support to some developers who need more capital for
their operations. It will not bring much benefit to the economy as a
Furthermore, many banks that have too
many bad debts will not want to continue lending to the property market,
as many real estate firms have already taken big loans.
Real estate prices are too high now,
exceeding the income of most of local people. Could the loosened credit
policy distort the market, raising the prices further?
The prices will not continue rising, but
will still stand high instead of reducing to their real value. Although
the interest rates have been lowered, they are still too high, failing
to encourage people to buy houses. Meanwhile, property prices have
exceeded their real value by many times. So, local people expect that
the prices will reduce to their real value. Property prices have
recently decreased, and are expected to keep falling over the coming
months. Meanwhile, the current interest rate of around 16 percent each
year is not a preferential one to consumers.
Interest rates have been raised, in an
unreasonable manner, to a high level since 2008. Before the year,
lending interest rates had never increased to over 20 percent, and
deposit rates to 17-18 percent as happened recently. Credit for property
sector has developed in an unprompted and disorderly manner in recent
Consumers should buy houses at their real
prices. The prices will go down to that level sooner or later, so there
is no reason for people to buy houses now.
Some banks have said they have reduced
their interest rates to facilitate purchase of houses by low-income
earners. In fact, it is difficult for even medium-income people to
Priorities for low-income or
medium-income people to buy houses are expressions of the subsidized
regime. Vietnam's credit system has developed only at a primary level,
so it has not yet been able to offer loans at low interest rates to
people who want to buy houses to live. Thus, the state should consider a
credit regime that could can facilitate customers with real housing
We should develop a real estate market
with real values. The state should sell land to developers at low
prices, for example VND2 million per sq.m, so that they could sell their
housing products to customers with prices of VND7-8 million per sq.m
after adding construction costs of VND4-5 million per sq.m and their
profit of some 10 percent. At such prices, local residents can buy
houses. Now, our real estate sector is participated in mainly by
speculators, so the state should readjust regulations.
The best way to develop the real estate
market is to bring property prices to their real value. If we support
developers, helping them to retain the high prices, they can only
survive for a short time only. Later they will die out because there
will be no customers.
In other countries, there are different
credit policies for investors in real estate projects and people who buy
houses to live. To access bank loans, investors need to demonstrate the
feasibility of their projects and their loan repayment capacity. People
who want to buy houses for living (not speculating) are supported by
the government with long term, low interest bank loans.