Real estate market needs diversifed capital raising channels to ensure development

May, 11/2022 - 10:22

It is necessary to diversify capital sources for the real estate market to reduce dependence on banking credit while the credit flow should be directed to target segments to ensure healthy market development, experts have said.

 

Tightening banking credit and corporate bond issuance for the real estate sector should be done with a roapmap to prevent market shocks. — VNA/VNS Photo Danh Lam

HÀ NỘI — It is necessary to diversify capital sources for the real estate market to reduce dependence on banking credit while the credit flow should be directed to target segments to ensure healthy market development, experts have said.

According to the Việt Nam Real Estate Association, the real estate market contributed around 14 per cent to the country’s gross domestic product (GDP) in the 2019-21 period and had a spillover effect on about 40 other important economic sectors.

Doãn Hồng Nhung from the Việt Nam National University, Hà Nội, said that in developed countries, every US$1 increase in real estate investment would promote other economic sectors by $1.5-2.

However, the capital source for the property market remained largely dependent on banking credit, Việt Nam Real Estate Association’s Deputy President Phạm Nguyễn Toan said.

Đặng Hùng Võ, former Deputy Minister of Natural Resources and Environment, said that the market was falling into a supply and demand imbalance with limited supply but increasing demand.

The real demand for housing was huge, plus many flocked to invest in real estate to earn profit, Võ said, urging caution on the possibility of a land price fever and control on capital raising for the real estate sector.

The central bank’s move to tighten credit flow into real estate was considered a solution to limit speculation, ensure market transparency and prevent a market bubble, General Secretary of the Việt Nam Banking Association Nguyễn Quốc Hùng said.

“Tightening credit is necessary to ensure healthy market development and reduce threats to the economy, especially in the context of hot market development in recent years when most investors used financial leverage,” Hùng said.

However, this policy was making it difficult for home buyers and developers who had real demand for capital to access loans from banks, he said, adding that priority should be given to diversifying channels and improving mechanisms to raise capital for the real estate market.

Lê Xuân Sang, Deputy Director of the Việt Nam Institute of Economics, said that developing the capital sources for the real estate market should focus on improving the existing channels such as banking credit and corporate bond issuance while promoting new channels such as real estate investment trust (REIT).

Sang, however, said that the credit and corporate bond issuance should not be tightened immediately but depend on each segment to raise appropriate regulations to prevent triggering large-scale market fear.

He said it was important to make information about corporate issuance and banking loans for the real estate sector transparent to prevent rumours which might heavily affect the market.

Economic expert Đinh Trọng Thịnh said that the credit flow should be directed to affordable homes, especially social housing projects and housing projects for workers to meet the demand for urbanisation and attract labour for key industrial and economic zones.

Lending should be prioritised for buyers who had not owned a home and for developers who had good capacity and are capable of bringing products to the market quickly, Thịnh said.

According to Ngô Trí Long, former Director of the Ministry of Finance’s Price and Market Research Institute, it is necessary to implement a set of solutions to improve the capital sources for the real estate market.

The State Bank of Việt Nam and credit institutions must ensure stable overall credit growth and quality of credit into the real estate sector.

On the other side, the Government should study the legal framework for non-bank institutions such as real estate investment funds and real estate investment trusts, Long said.

The tightening of corporate bonds should be done with a roadmap, slowly and step by step, Long said, stressing that if the brakes were put on too suddenly, it would cause shocks to the market and risks to the overall economy.

It was necessary to encourage good companies to issue bonds and consider this an important medium-term and long-term capital raising channel to reduce pressure on the banking system, Long said. — VNS

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