A view of a residential area in Hanoi (Photo: VNA)Capital mobilisation, especially for the real estate industry, is forecast toget tougher as interest rates in both the world and Vietnam keep rising.
Under global volatility, major economies such as the US, the UK and Canada havequickly tightened their monetary policy. The US Federal Reserve (Fed) raisedinterest rate five times this year to 3.75-4%, the highest rate since January2008. More rate hikes are forecast in the last months of 2022 and 2023, whichwill increase pressure on interest and exchange rates, and inflation in Vietnam.
In Vietnam, the State Bank of Vietnam (SBV) had to increase policy interestrates twice in a month by a total of 200 basis points. Accordingly, therefinancing rate is 6% per year, up from 5%, while the rediscount rate is 4.5%per year, up from 3.5%.
Currently, bank credit is limited as the General Statistics Office reportedcredit by the end of October this year surged by 11.5%. Therefore, if the SBVkeeps its credit growth target in 2022 at 14% as planned previously, creditwill be allowed to expand by only 2.5% in the last two months of this year.
Experts said it is difficult for the SBV to extend the credit growth target tomore than 14% this year, especially when inflation is posing higher risks withthe consumer price index (CPI) in October recorded at 4.3%.
With the 2.5% credit growth quota in the last two months of 2022, bankstherefore will prioritise financing only production and business, excludingreal estate.
At a meeting of the National Assembly on November 3, SBV’s Governor Nguyen ThiHong said real estate loans were being restricted to protect commercial banksand control inflation.
At a time when inflation control and bank safety are put first, it would beunwise to increase lending to real estate businesses, she noted, adding thecentral bank’s monetary policy was to ensure macroeconomic stability andcapital safety for commercial banks. Meanwhile, it would be potentially riskyto lend to real estate businesses because real estate loans were huge and wouldcome with a long term.
Hong said bank credit was just one of the funding sources for the propertymarket and property businesses could raise capital from other sources.
Neil MacGregor, Managing Director of Savills Vietnam, said the Government andthe SBV were making strong efforts to control inflation and stabilise themacro-economic environment, which would help the country’s economy growhealthily and sustainably in the medium- and long-term, news portaldangcongsan.vn reported.
He said the Government's initiative in tightening capital mobilisationchannels, such as corporate bonds and bank credit, would have certainshort-term adverse impacts on many industries, including real estate. Inreturn, Vietnam would have a more transparent financial market and gainincreasing credibility in the eyes of international investors. However, themove had limited the domestic capital access of real estate enterprises.Investors and developers in the real estate industry, therefore, were beingpushed into a challenging period when capital mobilisation channels, such asbond issuance, bank credit and the stock market, were disrupted.
According to a report from the Ministry of Finance, the bond issuance value ofreal estate enterprises in the first three quarters of 2022 decreased sharplyto about 93 trillion VND, accounting for 28.87% of the country’s total bondissuance value.
FDI capital flow
To ensure the real estate industry maintains a stable recovery rate and meetsthe needs of other economic sectors, MacGregor suggested real domestic estateenterprises raise capital from the foreign direct investment (FDI) flow.
While the capital mobilisation channels, including corporate bonds and bankcredit, were not feasible, real estate enterprises should look to FDI capitalas a suitable solution, he said, noting after more than 30 years ofimplementing the open-door policy to attract FDI, Vietnam had so far receivedinvestment from 140 countries and territories around the world. Manufacturingand real estate had been the most attractive industries to foreign investors.It must be affirmed that FDI capital was one of the most important sources for Vietnam.
Finding capital for the real estate industry from FDI flows was entirelypossible because the interest of foreign investors in the Vietnamese markettoday was very big, MacGregor said.
According to the Ministry of Planning and Investment’s Foreign InvestmentAgency, as of October 20, the total registered FDI capital to Vietnam reached 22.46billion USD, down 5.4% over the same period in 2021. However, the foreign flowsto real estate continued to surge in the period, helping the industry ranksecond in the list of industries attracting FDI with more than 3.87 billion USD,against 2.12 billion USD in the same period last year.
MacGregor believed with existing cleared land resources as well as transparentworking methods and available competence, it would not be difficult fordomestic real estate enterprises to find suitable foreign investors.
With the advantages of understanding the domestic market and administrativeprocedures, many Vietnamese real estate enterprises had so far cooperated withforeign investors, who have good experience and financial strength, to supplythe market with many large-sized real estate projects in every segment with goodquality, he said./.
VNA
