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NEWS UPDATES Asean Affairs          5   July  2011

Interest rates hit property market

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High interest rates and tighter credit are lowering the liquidity of real estate and pushing a number of housing developers into bankruptcy, according to experts at a seminar held in Hanoi last week by the Vietnam National Real Estate Association.

Tran Kim Chung of the Central Institute for Economic Management said that after three years in the doldrums, the nation's real estate market was badly in need of capital to recover and continue developing.

In order to curb inflation and stabilise the economy, the government has ordered commercial banks to tighten credit for the real estate market and other non-manufacturing purposes. Last week, banks were required to show that such loans were less than 22 percent of their total outstanding loans, a figure that they would be required to reduce to 16 percent by the end of the year.

Because of this requirement, an estimated VND10 trillion (US$477 million) has been diverted from lending to the real estate sector.

Deputy Minister of Construction Nguyen Tran Nam also said that by tightening the real estate sector's access to credit, banks were increasing the likelihood that real estate developers would default on earlier loans. Projects were likely to become stagnant as developers were unable to work without access to financing, and many of these would likely be high-end residential projects that depend on bank financing being available to potential buyers.

Therefore, developers have complained that the market for their projects has dried up and that many were facing default on existing bank loans. Nam suggested that policies be more flexible to prevent this and ease the crunch on the real estate market.

Minister of Construction Nguyen Hong Quan has sent a letter to the State Bank of Viet Nam seeking more favourable conditions for the market. The letter suggests that the central bank adjust the proportion of loans appropriate to each industry's legitimate needs instead of placing a moratorium on all non-productive sectors.

Outstanding loans to the real estate sector totaled VND222 trillion ($21 billion) at the beginning of last month, according to the SBV.

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