According to Circular No. 16/2018/NHNN, amending and supplementing articles of Circular 36/2014/NHNN, from January 1st 2019, credit institutions and branches of foreign banks are allowed to utilized up to 40% of short-term funds for medium-term and long-term loans, at 200% risk factor.
Experts calculated, from 2019, medium and long-term capital flow from banks will decrease by 20% compared to 2016. More specifically, according to HCMC Real Estate Association (HoREA), real estate credit growth was only 4.55%, the lowest increase in the past 3 years.
Banks and customers are the two main sources of funds for investors in the Vietnamese real estate market. Thus, real estate investors must be creative when banks tighten their credits. One such action is to leverage their customers.
Most noticeably, a project on the east of HCMC has introduced a policy that requires the customer to deposit 20% of the purchase price, the other 75% will be financed by the bank, and the developer will cover the customer’s loan interest. This is smart business because customer’s loan interest is no different than if the investors were to loan themselves.
Another solution is complimentary ventures, in which a business with land funds will cooperate with a deep-pocketed company to jointly deploy projects.
One last method is going public. In 2017, more than 20 businesses applied, 11 of which had completed their IPO, namely First Real, Cenland, Netland, Vinhomes, etc.
President of HoREA Le Hoang Chau stated that restricting credit into real estate has forced firms to seek outside capital. Of all capital sources, real estate investment funds are not feasible because there is only one available currently and that is TCREIT of Techcombank with just 50 billion chartered capital, not sufficient for the market’s huge capital demand.
Photo: Dung Minh
Miracles from foreign direct investment
According to Tran Lam Binh, Managing Direct of real estate consulting company IMM Property, FDI is favoured by many businesses as a replacement for bank credit. Particularly, FDI into Vietnamese real estate has reached 5.7 billion USD, accounting for 20.4% of total registered capital.
This trend is also defined by strong merger and acquisition activities in 2017 and 2018. 5 out of 8 biggest M&A deals in 2017 and the first half of 2018 are related to real estate, worth up to 3 billion USD and accounting for 32.9% total value. Most foreign capital poured into real estate comes from Asian countries like Japan, Singapore, South Korea, Hong Kong, etc.
Mr. Tran stated that commercial apartments, office buildings, and hotels with sizes ranging from 10 to 100 million USD are especially interested in by the Japanese, Korean, Malaysian, and clients from Hong Kong.
The credit tightening policy has significantly affected Vietnamese investors’ competitiveness. The interest rates of many developed countries only range from 0.5 to 2 percent per annum and taking advantage of this is obviously a smart investment choice. “The dominance of foreign investors in Vietnam real estate market is inevitable in the long run,” Mr. Tran affirmed.
Meanwhile, agreeing with Le Hoang Chau’s recommendation, Mr. Tran believed that real estate companies should consider listing shares on the stock exchange to raise capital. Local businesses need to make every effort to qualify for corporate bonds, project bonds and listings on international stock market.
For FDI, Mr. Le advises to domestic businesses that reputable and financially feasible foreign investment companies and funds should be preferred for project development. In addition to their abundant capital, local enterprises can also learn from their experiences to improve management capacity.
