Financial institutions adjust real estate lending tactics

Recent adjustments in lending terms by various banks signal a broader effort to adapt financial products to Vietnam’s evolving real estate sector.

At its AGM in late April, VPBank CEO Nguyen Duc Vinh acknowledged the real estate sector’s potential to generate significant returns for the bank, emphasising the importance of stringent controls and thorough legal documentation, particularly for loans catering to genuine residential demand.

Vinh detailed that construction project loans constitute 19 per cent of the portfolio, while home loans account for about 16 per cent.

“Although there was a minor dip in total outstanding home loans last year, these were predominantly genuine demand loans, distinct from the speculative premium real estate sector,” Vinh said.

As one of the top three home loan providers in the Vietnamese market, VPBank continues to focus on this segment in 2024. Vinh highlighted the high recoverability of real estate debts.

Vinh noted, “Real estate debts, while challenging, often show the highest recovery rates, nearly all the principal when the market rebounds, with interest recovery ranging from 50 to 70 per cent.”

Banks are actively enhancing their financing offerings to stimulate sector growth. Last week, VPBank rolled out new loans for leasing or purchasing properties, starting at a competitive rate of 0.6 per cent per month.

A representative said, “Our aim is to drive growth in the industrial real estate sector. To support this, we are providing loans secured by lease or purchase agreements, with credit available for up to 70 per cent of the agreement’s value and loan terms that can extend up to 20 years.”

Elsewhere, MB Bank CEO Pham Nhu Anh provided an update on the debt status of major players like property developer Novaland.

“In the past year, MB managed to recover $100 million, and the current outstanding debt is not considerable. Our lending is project-specific, with tight risk management and secured asset strategies,” said Anh.

Other financial institutions are also recalibrating their real estate lending strategies.

BVBank has announced annual mortgage rates starting at 5 per cent, with a post-promotional margin increase to 2 per cent, and floating rates between 9.5 to 10 per cent annually. Sacombank has set fixed rates of 6.5 per cent for the first six months, 7 per cent for the first year, and 8 per cent for two years, with rate adjustments every three months following the fixed period.

Vietnam’s state-owned banks, including BIDV, VietinBank, Vietcombank, and Agribank, offer real estate loan rates ranging from 5-7 per cent annually, varying by loan term.

Despite these competitive rates, accessing credit remains challenging for many businesses. Nguyen Quoc Hiep, chairman of Global Real Estate Investment Corporation, criticised the cumbersome bureaucratic procedures associated with securing loans.

“The credit issuance process is fraught with complexities, requiring up to two months and an array of often superfluous documentation,” Hiep said. “This inefficiency significantly hampers businesses’ ability to quickly access needed funds, and ongoing legal ambiguities surrounding many projects exacerbate these challenges.”

Loan eligibility hinges on securing investment approval, necessitating legal land ownership - a stipulation that is frequently unattainable for otherwise viable projects due to prevalent land shortages, Hiep said. This requirement often disconnects regulatory frameworks from the practical realities faced by businesses.

In a report last week, Shinhan Bank detailed the ongoing challenges within Vietnam’s real estate market, noting significant economic headwinds and liquidity issues.

“Despite reductions in interest rates and loosened lending and bond issuance regulations by the State Bank of Vietnam and the government, financial institutions are still grappling with liquidity challenges. Additionally, a decrease in market demand has complicated the resolution of cash flow issues for real estate companies,” the report said.

Corporate bonds maturing from early March to the end of 2024 total about $10.76 billion, with the real estate sector comprising 38 per cent or $4.13 billion and the banking sector at 21 per cent, about $2.27 billion, according to the bank.

Property Guru Vietnam believes that the new provisions in Section 3 of the 2024 Credit Institutions Law are set to enhance transparency and bolster the health of the capital market.

“Particularly, foreign cash inflows are expected to strengthen the market as foreign direct investment and remittances into real estate have remained stable over the years,” the company said.

The adoption of new legislation on land, housing, and others is anticipated to influence the market positively, it added.

Hoang Hai, director of the Housing and Real Estate Market Management Department at the Ministry of Construction, underscored the significance of these changes.

“The recent amendments to the housing and real estate laws represent a major policy progression. This will serve as a crucial legal framework with numerous regulations that positively influence the market, benefiting both investors and consumers,” Hai said.n