Regulator sees no sign of another real estate bubble

VnnNews – The amount of outstanding loans to real estate investors is much lower in Hanoi than HCM City, where “banks are more liberal”

The National Finance Supervision Committee, established in March 2008, oversees Vietnam’s stock and insurance markets and its banking and real estate sectors. The committee is now compiling its first supervision report.  Thoi Bao Kinh Te talked with Le Xuan Nghia, the independent committee’s two deputy chairmen. 

 

Thoi bao Kinh te Vietnam:  What does the committee think about the recent abnormal events in the Hanoi real estate market?

 

Le Xuan Nghia: I think that the real estate fever broke out because of the limited number of real estate projects.  In principle, real estate investors have to borrow money from banks to develop projects.  However, banks have been very selective about borrowers, and that’s limited the number of projects.

 

It takes long time to get a license for a project, and that makes banks hesitant to lend money.  Additionally, the project investors themselves hesitate to borrow money because they fear they do not have enough money to pay interest on long term loans.

 

TBKT: Why are there so many more outstanding loans to fund real estate investments in HCM City than in Hanoi?

 

Nghia: As far as I know, real estate loans in HCM City account for nearly 60 percent of the total outstanding loans, and just 15 percent in Hanoi.

 

It is simply because there are many more housing projects in HCM City.  Importantly, the banks that provide real estate credit in HCM City are more liberal than in Hanoi.  In HCM City, projects’ investors and banks will let investors use the projects themselves as collateral for the loans

 

Also, let me repeat, it always takes time to get a license.  The administrative procedures are formidable.  Investors sometimes have to spend 6-7 years on that work. This makes banks hesitatant to lend money. Project implementation can be stopped at any time just because of the problems in administrative procedures.

 

This explains why the real estate credit in Hanoi is astonishingly low. The amount of real estate loans has been growing, but at a slower rate than credit in general.  So since the beginning of the year, real estate credit has grown by only nine percent whereas total credit has expanded by 36 percent.

 

TBKT:  Real estate prices went up very rapidly and then crashed.  Do you think that we will face another real estate bubble in the immediate future?

 

Nghia: I doubt we’ll have a real estate bubble anytime soon.  Real estate prices in HCM City haven’t yet returned to their previous highs.  A “bubble’ only occurs when the price increases by at least 20 to 30 percent per annum for several years.  That won’t happen as long as the banks remain very cautious about real estate project loans.

TBKT:  Are you saying that real estate remains the most effective and safest form of investment?

George Soros famously said that pouring money into the real estate market brings the most profit, if investors have plenty of long term capital

 

All kinds of investments follow economic laws.  Because real estate investments promise high profit, they always have high risks.  Daring investors can make fat profits.

 

VietNamNet/TBKTVN

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Tags: Hcm City, In Hcm City, Real Estate, Real Estate Bubble, Real Estate Credit, The Real Estate, Physics games

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