Crisis in real estate remains unresolved

(SGI) - There are conflicting opinions among the people on whether the real estate market should be given support and bailed out from its current crisis.
Crisis in real estate remains unresolved

However, the fact remains that the real estate market contributes a great deal towards the national economy and is also a source of revenue for many affiliate industries. Although a lot is being discussed about the current difficulties in the real estate market not much has come forth by way of solutions.

At meetings all real estate enterprises lament on their inability to access credit from commercial banks which they believe is the reason why the current situation has become so precarious. In response to this the State Bank of Vietnam has said that no statement has been made to confirm the tightening of real estate credit, and the document directing control of credit capital flow into high-risk areas, including real estate, is equally guaranteed as for other fields.

The fact is that in the current situation, with so many projects put on hold by real estate businesses, it is difficult for any commercial bank to lend as debt recovery is certain to be risky. The credit balance of the real estate sector at the end of 2022 had reached VND 2,580,000 bln, an increase of about 24% compared to 2021, and a faster increase than the overall growth of the economy.

In normal times, real estate always found it easy to access capital from three robust channels, compared to other industries. For accessing these channels, the real estate enterprise must mention the concerned credit channel, because the borrower must show a collateral for a project and also accept higher interest rates. Next, the channel will have to raise capital from homebuyers, through payments made according to the progress made on the project. As for the home buyers, they also have to borrow from the bank to complete the purchase and sale contract.

Hence, this process shows that the real estate businesses indirectly attract capital from the bank. In the case of the corporate bonds channel, as is known, it is too easy to access. Since 2020 the total volume of domestic corporate bonds issuances has reached VND 466,826 bln, of which real estate enterprises are the largest issuers, accounting for 33.6% of the total volume. In 2021, the issuance was valued at VND 658,009 bln, of which real estate corporate bonds account for 35%. However, when mobilizing capital, real estate businesses ignore the risk part and the management agencies also become lax.

Since 2022, when the corporate bonds scandal was exposed, investor confidence in corporate bonds has collapsed, and issuance regulations have been tightened. Under the current circumstances, real estate enterprises find it difficult to issue new bonds. When investors lose confidence in the business of bonds, they also stop contributing capital to projects, while banks begin to tighten credit to avoid bad debts.

In the current scenario, if we want to remove the difficulties for the real estate businesses we can only wait for stronger solutions from the Government. This is to say that the Government should have a national debt forbearance program for corporate bonds at this time and allow all corporate bond issuers to defer debts for a period of at least one or two years, while only supporting those enterprises who comply with the law.

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