Labeling real estate as ‘high-risk’ inappropriate: association head

Vietnam’s long-standing classification of real estate as a high-risk sector in credit policy is improper and may be distorting the market, according to Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association (HoREA).

Speaking at a recent seminar on property credit, Chau argued that a broad-brush approach to risk assessment has constrained financing not only for developers but across the wider economy, disrupting supply-demand dynamics and weakening a key growth engine.

He said authorities have had reasons to tread carefully. Past episodes of speculative land price surges, heavy financial leverage, and volatility in the corporate bond market have underscored the sector’s potential to transmit systemic risks if left uncontrolled. In that context, tighter credit oversight has been a defensive policy choice.

However, he stressed that the current framework risks treating the entire market as uniformly risky - an approach he described as both inaccurate and counterproductive.

“Real estate is not a monolithic sector,” he said, noting it spans industry, commerce, tourism, healthcare, and education. Industrial property in particular has remained a stable performer, playing a critical role in attracting investment and supporting manufacturing growth.

More broadly, real estate is one of Vietnam’s 21 top-tier economic sectors, with significant spillover effects. In Ho Chi Minh City alone, it has at times contributed 30-34% of the gross regional domestic product (GRDP).

“A sector with such wide-ranging impact cannot be viewed solely through a ‘risk’ lens,” Chau said.

Credit constraints ripple through market

The implications of that classification are most visible in credit policy. Caps on real estate lending growth, aligned with overall credit ceilings, and quarterly loan quota allocations have reduced banks’ flexibility, leading to tighter and more fragmented capital flows, the HoREA chairman said.

The knock-on effects have been widespread: approved loans delayed in disbursement, project cash flows disrupted and homebuyers facing increasing difficulty accessing financial sources. This is particularly problematic in a sector reliant on medium- to long-term capital, where project cycles typically span three to five years or longer.

“When capital is squeezed into short-term cycles, the market doesn’t just slow but it becomes structurally distorted,” Chau analyzed.

Developers, facing higher financing costs, are increasingly shifting toward high-end segments with better margins, while affordable housing and social housing, despite strong underlying demand, are being crowded out.

The result, he said, is a paradox: policies designed to mitigate risk may be exacerbating imbalances. A recent project in HCMC offering more than 1,000 social housing units drew around 12,000 applications, highlighting robust demand constrained by limited supply.

From a business perspective, Nguyen Thanh Huong, CEO of Eras Land, said the impact of credit conditions and interest rates has been immediate.

Most homebuyers rely on loans covering roughly 70% of property value, typically over 10-20 years. When interest rates rise from preferential levels of 6-7% to 13-14%, repayment burdens increase sharply, forcing many households to delay or abandon purchase plans.

For developers, rising capital costs combined with long project timelines have made returns more uncertain.

“Interest rates need to be stable and aligned with the long-term nature of real estate. Sharp fluctuations affect both developers and homebuyers directly,” Huong said.

Where do the risks come from?

Chau also questioned whether real estate credit risks are being overstated in some cases. Property-backed loans typically include significant collateral buffers. For example, an asset valued at VND100 billion ($3.8 million) may be appraised at VND70 billion, with loans capped at around VND49 billion.

While risks such as declining liquidity, prolonged asset disposal timelines and market volatility remain, he argued that systemic risk may lie as much in restricted capital flows as in lending itself.

When credit is misallocated, projects stall, developers face liquidity strains, and related sectors such as construction are affected, potentially undermining a key driver of economic growth.

Rather than broadly tightening or loosening credit, Chau called for a more targeted approach: prioritizing financing for affordable and social housing, supporting young buyers and workers, and facilitating projects with clear legal status.

Echoing this view, Tran Si Nam, deputy director of the HCMC Department of Construction, highlighted strong housing demand among the city’s young workforce and the need for more flexible credit policies to support them.

A more efficient allocation of capital, he said, would incentivize developers to return to segments that meet real demand, instead of being pushed toward higher-end projects.

Real estate, Chau stressed, is not without risk but applying a blanket risk label to the entire sector risks unintended consequences.

“The issue is not changing the goal of risk control but understanding risk correctly to direct capital appropriately,” he noted.