Homebuyers need to enjoy lower interest rates

By Dinh Dung and Thuy Trieu in HCMC A luxury residential project with the second phase getting underway in HCMC’s Binh Thanh District - Photo: Dinh Dung Circular 13/2010/TT-NHNN, issued by the State Bank of Vietnam, came into force last Friday affecting different sectors including property. Although little change was made, the circular keeps unchanged the criteria for the property sector as it requires banks to apply a risk coefficient rate of 250% for real estate loans. For many, the move may choke off financing for the property market, which has not fully recovered from the woes since it slid into recession two years ago. Nevertheless, experts think that it is not due to the circular that will prevent credit institutions from channeling funds into the real estate sector but there are different reasons. “In fact, banks, if any, have already reduced real estate loans for a long time,” Dinh The Hien, a financial investment expert, commented on the issue to the Daily last week. Hien explains that banks offer loans based on mortgaged properties, so only borrowers who have good business performance will be able to access loans. When borrowing, many customers use their property as security for loans in addition to goods and other things. In reality banks normally depend, directly and indirectly, on real estate used to mortgage loans, so there is no point for banks to narrow loans for property investments. “We should not point to the circular as a reason behind banks’ restrictions on property loans,” Hien stressed, adding the problem is due to other factors. The expert attributed the problem to the property market which has been going flat for a long time. Therefore banks have no choice but to secure their lending by limiting loans for the property sector. “If the market is good, they will find all possible ways to offer loans for property investments,” Hien said. The director of a big bank in HCMC told the Daily that his bank has narrowed funds for the property sector over a year due to risks in the sector. “Because the property market has been quiet, we have to limit our lending,” the director said, adding the bank still considers extending loans for home buying, not for investment. Pham Quoc Thanh, deputy director of An Binh Bank, said that as the risk coefficient rate for the property sector is up from 150% to 250% in line with new rules, the bank is considering hiking lending rates in the coming time. Hien said there are two kinds of homebuyers in the market. For speculators, they only join the market when there are good chances. Experiences in other countries show that interest rates for the property sector are often lowest, he said, because property is the safest mortgage compared to others used for securing loans. Moreover, borrowers prove their repayment capacity by their income from the job. Hien said buying a house requires a big sum of money and that with a current interest rate, homebuyers who borrow from banks cannot pay the monthly interest. Therefore, those who buy apartments for accommodation will face problems if they do not have a big amount of savings. “Interest rates for real estate loans should have been lowest in comparison with others,” Hien said, adding low interest rates will support homebuyers, project developers and even banks. In contrast, high interest rates will put pressure on borrowers, and once they fail in their payments, banks will face liquidity risks. He suggested interest rates should be 8% to 10% per year to support different sectors including property. According to the central bank, outstanding loans for the property sector had reached VND218 trillion by late September, up 18% from late last year. Like other market observers, Hien said abundant supply in the condo market will increase pressure on developers, but the market is expected to fare better from the middle of next year given the economic recovery. The Saigon Times Daily