Property investment increasingly difficult

With real estate prices rising and banks toughening up on property loans, realty investors have a lot to be nervous about.

As tightened monetary policies have made markets volatile, those looking to profit on property are finding banks increasingly uncooperative.

Director of Saigon-Gia Dinh real estate company Nguyen Phung Thieu said his company had been re-considering a low-income housing project plan since banks began tightening credit on real estate loans.

Low-income-bracket residents might be the most affected by the distance banks are putting between themselves and the risky property market, Thieu said at a recent conference between the Ho Chi Minh City Real Estate Association and local authorities.

For the past week, commercial banks across the city have been reducing real estate loans, rejecting more applications on suspicion of speculation and terminating expiring loans in response to the overheating of the property market.

Conference attendees agreed that a major factor driving up real estate prices for the past six months was an increasing demand for property from the wealthy.

Many rich people had used their spare money, or withdrawn investment from the stock market, to invest in real estate, according to experts at the conference.

They said that whether or not banks went tough on property loans, the wealthy group would not be affected.

But for poor people in need of housing and for not-so-rich investors, including many real estate companies who need loans to finance projects, experts called the tightened policies “a nightmare.”

The poor might find housing too expensive and investors could be discouraged from carrying out new projects.

Investors shaken

In a separate conference, Chairman of ACB Capital Management Company Trinh Kim Quang predicted that banks themselves were scrambling for cash due to the central bank’s tightening of credit measures to curb inflation.

Quang said this would make it even more difficult for real estate investors to obtain bank money.

Commercial banks are required to increase their cash reserves by 1 percent while buying trillions of dong in treasury bills to be sold by the central bank next month.

The increase in compulsory cash reserves had put pressure on deposit interest rates, which in turn was pushing up interest rates on different types of bank loans, making it all the more difficult for investors in need of bank loans, said Quang.

But experts said what they feared most was the market “freeze” that could occur if real estate businesses – 70 percent of which rely on bank loans to fund projects – could not carry out their projects due to a lack of affordable loans.

Some insiders have predicted that many projects would be shelved as banks may terminate loans or reconsider interest rates unexpectedly.

Quang said the tight credit on loans was partly aimed to correct the consequences of previous lending.

Banks had previously vied with each other to attract real estate investors by offering low interest rates and easy requirements, which led to a dramatic increase in property lending, Quang said.

Others, however, expected banks to be on friendly terms with property investors sooner rather than later.

“Real estate has always been an attractive market for banks,” Chairman of the Mekong-Delta

Housing Development Bank Huynh Nam Dung said at the same conference.

Dung said that practical and promising projects and people with real housing needs and the ability to pay back loans were still able to secure loans from banks.

Property shortage

Experts say that low supply is the root cause of rising real estate prices.

Banks have been advised to encourage lending to projects designed to relieve the shortage.

But if tight credit policies are applied indiscriminately to all property items, the shortage might be aggravated and prices may soar even higher.

Local real estate firms said the property market had appeared to cool a bit this past week with more sellers than buyers.

Some attribute the quietude to bank policies.

Others say that public anticipation of a tax targeting excessive or unproductive land to be drafted this year is having a greater impact.

Property prices have been lowered in some areas, but experts say the decrease in prices is insignificant.

To bring down prices, supply needs to be increased to meet the rising demand from customers, many of whom are enjoying better incomes and thus have more money to invest in real estate.

According to President of Thu Duc Housing Development Company Le Chi Hieu, one way to increase supply is for the government to simplify procedures to ensure swift execution of real estate projects.

Head of Dat Lanh real estate company Nguyen Van Duc said it normally took 3 to 5 years for investors to secure necessary permits to start building their projects.

(Thanhniennews)