HCMC tightens credit for high-end property, resort investments

The State Bank of Vietnam's Ho Chi Minh City branch has instructed banks to apply credit restrictions to high-end real estate and resort investments.

"Banks need to limit credit for high-end property, resorts, and speculation real estate," the banking regulator stated in wake of the Prime Minister's instruction to ensure the healthy and stable development of the city's real estate market.

"Credit policies need to be flexible to cater to people's actual housing demand," it added.

Sacombank recently ceased disbursing property loans until June. Another private lender, Techcombank, has also put certified and secondary property purchase loans under tight control.

Currently, the total outstanding real estate loans are about VND2,000 trillion ($87.12 billion), accounting for 20% of the outstanding loans in the economy. Growth of real estate credit has gradually dropped from over 26% in 2018 to 12% in 2020-2021, according to the central bank.

In addition to real estate, the State Bank of Vietnam has obliged lenders to maintain rigorous credit management when it comes to risky sectors such as securities, build-operate-transfer (BOT) and build-transfer (BT) projects, and corporate bonds.

Nguyen The Diep, Chairman of Song Hong Reenco Investment JSC, believed that limiting loans for property investment is vital to preserving economy safety, but such a move must be cautious. "Because the execution period of a real estate project can be 5-10 years, a few years of stagnation would cause short supply, resulting in surging property prices,” he said.

Loan restrictions can cool down the recent "land fever" by reducing financial leverage speculation. However, these administrative entanglements and review orders might lead to supply limitations, according to Diep.

Nguyen Van Dinh, Chairman of the Vietnam Real Estate Association, argued that "tightening credit will not lower property values, but rather restrict market liquidity, causing prices to go sideways."

This is because long-term investors with good financial planning will not be affected, he added.

However, real estate companies that rely on bank loans to develop projects could be severely impacted. “It even leads to narrowing of the project’s scale,” Dinh noted, warning that businesses with projects under construction and sale would be affected since buyers are more passive and find it more difficult to secure loans.