The real estate market report (Oct 24th – Oct 30th) "Open door" with the real estate credit - A way to reduce risks for banks
Last week’s most mentioned information is that property price continues to fall but buyers haven’t been interested much. Even financial experts also say that it will be reasonable if the property price reduces further.
Property price continues to drop
A recent survey of Hanoi’s housing market in 3rd quarter, 2008 has shown that although prices of all current apartments are low at 7-10% compared with the peak level achieved in 1st quarter, 2008 and much lower compared to the time of 4th quarter, 2007, the number of successful transactions is not much. For the implemented projects with slow progress such as Nam An Khanh, Duong Noi, many investors have accepted lower selling price compared to the original price to cut losses due to suffering from banks’ interest rate. The main reason of price decrease without transaction is that people having real housing demand for living or businesses have financial difficulties because of not being received support from banks.
Besides, according to the assessment of realty experts, apartment price fluctuating from 732 to over 2.500 USD per sq.m (depending on each grade) in the market currently is still too high for people’s earnings. Furthermore, after many times of price decrease, the buyers are still waiting for the next price drop in coming time.
In HCM City, the prices of foundation land lots and apartments fall significantly (but in some prime locations, price is still high). Because there are many projects, property prices in HCM City drop much more than in Hanoi. In some places, the falling rate is up to 60%. An another reason for this is sharp price fall of construction material.
In response to the press, MA. Vu Dinh Anh, Deputy Head of the Market and Price Research Institute under the Ministry of Finance says “The present market has no transaction is due to the fact that prices of property types ranging from lot, foundation, houses, offices for lease, apartments, act are still high, even too high. The thing that businesses need to do now is reducing the price to stimulate the buyers and “to activate” the market. “The prices of offices and high-rise apartments will have to drop further”, Vu Dinh Anh affirms. As to him, apartment buildings without any transaction is because many current homebuyers don’t really need the accommodation, but because they have much money, they want to buy houses to save their money or to re-sell. Only the price falls down by more 10-12%, real demand will arise.
Mr. Vu Dinh Anh analyzes that at present, the market is struggling between the businesses decreasing prices to sell goods, to restore the capital, to compensate costs and falling into the impasse to bankrupt if not cutting the prices. “Cutting the prices can make profit lessen, even suffer losses. Evidently, referring to price cutting, the businesses will not appreciate, the financial institutions will not either,” Mr. Anh says.
However, according to Mr. Anh, to save the realty market, the government must propose methodical and systematical solutions in the direction of creating many channels with different investment capitals. And it’s necessary to have comprehensive and consistent guidance in legal document, not leaving the businesses to self-manage.
Necessary to actively deal with the real estate credit
The State Bank of Vietnam has told that there is now VND115 trillion in direct real estate loans from banking system. This amount is very huge if including nearly VND500 trillion of mortgage assets in property in Vietnam. Le Xuan Nghia, Director of Department of Banking Development Strategy under the State Bank of Vietnam says that the level of non-performing loans (NPLs) in total outstanding loans is about 2,7%.
Because of the “frozen” realty market and “weak” transactions, from now to the year-end, it is predicted that NPLs in this field increase by 4% in total outstanding loans. The level of NPLs is nearly double compared to the one of 2007 and the year 2009 is projected to not be much better.
The situation of overdue debts in the real estate credit shows a increasing sign, some real estate businesses appear signs of losing the ability to pay debts. “If the realty market has no liquidity by December 31st, 2008, all current real estate debts will become default. Although all debts have mortgage assets, the banks cannot also liquidate them at the same time or find VND115 trillion to buy such properties. Moreover, liquidation procedures are too complicated”, a financial experts forecasts.
According to Mr. Le Xuan Nghia, the strategic target put forward by the State Bank of Vietnam from now to 2010, NPL below 5% is acceptable. Therefore, the rate 4% is still in the proposed strategy. On the other hand, in past time, the lending in the realty field is strictly controlled by banks from appraising to lending rate. As a result, secondary risks for the real estate lending is not big. However, Mr. Nghia has said that although the real estate NPLs are not big compared to the total outstanding loans, it’s dangerous that they mainly concentrated on some small, weak commercial banks with high real estate outstanding loans. This makes these banks face serious capital decline, stand in front of high risks, not have enough backup fund to solve NPLs, and then heavily causes difficulties on its liquidity as well as financial effects in their business activities.
A team of specialists of National Center for Socio-Economic Information & Forecast have judged that the current risk is that the banks turn their backs on the realty loans, causing the market not to defreeze, payment of mortgage loans to encounter difficulties. Even for another mortgage assets, the banks find uneasy to liquidate to withdraw the capital promptly.
Basing on the instantly payable capital excess of credit institutions of VND50 trillion (announced by the State Bank of Vietnam on October 24th), overnight rate of VND offered on inter-bank market falls sharply, from 13% down to 10,33% per year. Mr. Le Xuan Nghia has told that the banks can “open door” with the realty market on the basis of risk interest rate re-structure to have different interest rates for each lender. The well-assessed projects only finished 80-90% due to the capital shortage, so the banks should restructure their debts to help these projects to be completed as scheduled.
As a result, the real estate businesses will earn the money because of having products for sale and the banks will withdraw their loans. For the field of consumer lending, Mr. Nghia said that people having real demands can lend 50% of property value, with reasonable interest rate, contributing to create the liquidity for the market.
The experts also suggest that the government should pay attention to establish backup fund to cope with commercial banks having realty lending difficulties.
“For the financial market, just a slow step, costs of risk resistance can cost tenfold. Don’t think that the mortgages are safe without action. We must actively put the problems and resolve them by many different ways”, Mr. Nghia says.
Property price continues to drop
A recent survey of Hanoi’s housing market in 3rd quarter, 2008 has shown that although prices of all current apartments are low at 7-10% compared with the peak level achieved in 1st quarter, 2008 and much lower compared to the time of 4th quarter, 2007, the number of successful transactions is not much. For the implemented projects with slow progress such as Nam An Khanh, Duong Noi, many investors have accepted lower selling price compared to the original price to cut losses due to suffering from banks’ interest rate. The main reason of price decrease without transaction is that people having real housing demand for living or businesses have financial difficulties because of not being received support from banks.
Besides, according to the assessment of realty experts, apartment price fluctuating from 732 to over 2.500 USD per sq.m (depending on each grade) in the market currently is still too high for people’s earnings. Furthermore, after many times of price decrease, the buyers are still waiting for the next price drop in coming time.
In HCM City, the prices of foundation land lots and apartments fall significantly (but in some prime locations, price is still high). Because there are many projects, property prices in HCM City drop much more than in Hanoi. In some places, the falling rate is up to 60%. An another reason for this is sharp price fall of construction material.
In response to the press, MA. Vu Dinh Anh, Deputy Head of the Market and Price Research Institute under the Ministry of Finance says “The present market has no transaction is due to the fact that prices of property types ranging from lot, foundation, houses, offices for lease, apartments, act are still high, even too high. The thing that businesses need to do now is reducing the price to stimulate the buyers and “to activate” the market. “The prices of offices and high-rise apartments will have to drop further”, Vu Dinh Anh affirms. As to him, apartment buildings without any transaction is because many current homebuyers don’t really need the accommodation, but because they have much money, they want to buy houses to save their money or to re-sell. Only the price falls down by more 10-12%, real demand will arise.
Mr. Vu Dinh Anh analyzes that at present, the market is struggling between the businesses decreasing prices to sell goods, to restore the capital, to compensate costs and falling into the impasse to bankrupt if not cutting the prices. “Cutting the prices can make profit lessen, even suffer losses. Evidently, referring to price cutting, the businesses will not appreciate, the financial institutions will not either,” Mr. Anh says.
However, according to Mr. Anh, to save the realty market, the government must propose methodical and systematical solutions in the direction of creating many channels with different investment capitals. And it’s necessary to have comprehensive and consistent guidance in legal document, not leaving the businesses to self-manage.
Necessary to actively deal with the real estate credit
The State Bank of Vietnam has told that there is now VND115 trillion in direct real estate loans from banking system. This amount is very huge if including nearly VND500 trillion of mortgage assets in property in Vietnam. Le Xuan Nghia, Director of Department of Banking Development Strategy under the State Bank of Vietnam says that the level of non-performing loans (NPLs) in total outstanding loans is about 2,7%.
Because of the “frozen” realty market and “weak” transactions, from now to the year-end, it is predicted that NPLs in this field increase by 4% in total outstanding loans. The level of NPLs is nearly double compared to the one of 2007 and the year 2009 is projected to not be much better.
The situation of overdue debts in the real estate credit shows a increasing sign, some real estate businesses appear signs of losing the ability to pay debts. “If the realty market has no liquidity by December 31st, 2008, all current real estate debts will become default. Although all debts have mortgage assets, the banks cannot also liquidate them at the same time or find VND115 trillion to buy such properties. Moreover, liquidation procedures are too complicated”, a financial experts forecasts.
According to Mr. Le Xuan Nghia, the strategic target put forward by the State Bank of Vietnam from now to 2010, NPL below 5% is acceptable. Therefore, the rate 4% is still in the proposed strategy. On the other hand, in past time, the lending in the realty field is strictly controlled by banks from appraising to lending rate. As a result, secondary risks for the real estate lending is not big. However, Mr. Nghia has said that although the real estate NPLs are not big compared to the total outstanding loans, it’s dangerous that they mainly concentrated on some small, weak commercial banks with high real estate outstanding loans. This makes these banks face serious capital decline, stand in front of high risks, not have enough backup fund to solve NPLs, and then heavily causes difficulties on its liquidity as well as financial effects in their business activities.
A team of specialists of National Center for Socio-Economic Information & Forecast have judged that the current risk is that the banks turn their backs on the realty loans, causing the market not to defreeze, payment of mortgage loans to encounter difficulties. Even for another mortgage assets, the banks find uneasy to liquidate to withdraw the capital promptly.
Basing on the instantly payable capital excess of credit institutions of VND50 trillion (announced by the State Bank of Vietnam on October 24th), overnight rate of VND offered on inter-bank market falls sharply, from 13% down to 10,33% per year. Mr. Le Xuan Nghia has told that the banks can “open door” with the realty market on the basis of risk interest rate re-structure to have different interest rates for each lender. The well-assessed projects only finished 80-90% due to the capital shortage, so the banks should restructure their debts to help these projects to be completed as scheduled.
As a result, the real estate businesses will earn the money because of having products for sale and the banks will withdraw their loans. For the field of consumer lending, Mr. Nghia said that people having real demands can lend 50% of property value, with reasonable interest rate, contributing to create the liquidity for the market.
The experts also suggest that the government should pay attention to establish backup fund to cope with commercial banks having realty lending difficulties.
“For the financial market, just a slow step, costs of risk resistance can cost tenfold. Don’t think that the mortgages are safe without action. We must actively put the problems and resolve them by many different ways”, Mr. Nghia says.
Le Dinh
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