The prospects for the credit market are improving, backed by low lending rates and economic recovery. The dormant real estate market is expected to get a fresh boost from three new laws that will take effect in early August.

Still in troubled waters In the year to June 24, 2024, credit in the banking system had expanded by 4.45%, or a monthly average of 0.73%, according to the General Statistics Office. However, this growth began gathering speed in March 2024. The first two months of the year saw outstanding loans falling compared to the previous month and the end of 2023. Major sectors like real estate and construction, which account for a majority of outstanding loans, have performed poorly due to low capital absorption and credit demand. On the sidelines of a recent finance conference, Pham Nhu Anh, CEO of MB Bank, said that in the real estate sector, there are four types of lending – home loans, industrial real estate development loans, residential development project loans and tourism real estate loans. But commercial banks are finding it hard to lend to three of them, he noted. For home loans, Anh said, demand was woefully low in the first half of this year due to economic uncertainties and dropping incomes. This has impacted retail credit across banks, including MB Bank, which prioritizes retail lending. A similar trend is observed at Vietcombank, where retail credit, making up nearly 20% of its total credit, has been sliding primarily due to a drop in home loans. This fall has affected the bank’s retail credit growth. Nguyen Thanh Tung, CEO of Vietcombank, pointed out the ongoing challenges faced by the real estate market, including legal hurdles, limited supply and declining incomes, which have led to cautious market sentiment. Furthermore, banks have taken greater precautions in lending to individuals. A leader of a commercial joint-stock bank said that in the past, a loan normally made up to 70% of an asset used as collateral, but now the proportion has fallen to around 50%. Stricter asset valuation has also piled pressure on borrowers as they need to secure higher own capital. In the resort real estate segment, demand remains weak as tourism has only partially recovered to pre-pandemic levels, resulting in an oversupply. Legal issues continue to impede the development of housing projects. “The Government and various ministries are focused on resolving these issues, but it would take time to see tangible results,” Anh said. New real estate laws seen boosting credit growth MB Bank aims for 8% credit growth in the second half of the year, which will take its annual growth to 15.5%. To achieve this, Anh emphasized the need for comprehensive solutions and improved capital absorption as interest rates are at their lowest in a decade. Meanwhile, Vietcombank plans to focus on industrial real estate, key projects, FDI enterprises, and export-oriented customers, with 8.2% growth by September 30 and 12% by the end of the year. Nguyen Thanh Tung of Vietcombank noted that achieving a credit growth target depends not only on the bank but also on the ability to absorb capital in the economy. Support from ministries and local authorities in resolving project hurdles is essential. The amended Real Estate Business Law and Land Law, which come into force on August 1, 2024, along with the Law on Credit Institutions, effective from July 1, 2024, are expected to leave positive impact on lending to the real estate sector and the economy as a whole. Home loans account for the largest proportion of real estate loans. In HCMC, the country’s largest market, home loans make up a staggering 67.78% of total real estate loans in the city. In May, housing credit grew by 1.2% after months of decline, contributing to a 1.15% overall rise in real estate credit compared to April, with outstanding loans reaching VND992.8 trillion, 28% of the city’s total. This growth not only drives real estate credit but also supports lending to meet housing demands, positively affecting the real estate market and economic growth. Real estate legal expert Nguyen Van Dinh expects the early enforcement of the above new laws will help address the “wait-and-see” attitude among officials. For example, the amended Land Law specifies whether enterprises must go through land auction or bidding when they change land use purposes, so the clearer regulations will make officials more confident to make decisions, thus and saving time and money for businesses and citizens. That the amended Real Estate Business Law restricts the division of land into small plots for sale will force enterprises to focus on building homes and infrastructure rather than speculation. The law also allows the transfer of land with already-built technical infrastructure to organizations for developing housing or construction projects. This new provision, targeting organizations and real estate businesses, is expected to spur real estate M&A activity, fueling growth in the market, according to Dinh. Adding to this perspective, PwC Vietnam experts said that the law provides specific conditions, including the ability to separate project components and resolve mortgages before transfer. Clear regulations on transfer procedures can increase market liquidity, creating opportunities for real estate businesses to engage in acquisitions or divestments, thereby stimulating capital demand in this market. Additionally, the Real Estate Business Law provides opportunities to introduce new real estate products by expanding the asset types to include both existing and future projects. This allows most real estate to be sold “on paper,” thereby enhancing opportunities for enterprises to take out bank loans. The amended Credit Institutions Law also allows the transfer of real estate projects used as collateral for loans provided that banks meet strict requirements for bad debt management. This is expected to facilitate debt recovery and reduce bad debt in the real estate sector. Given these developments, MB Bank foresees numerous obstacles being resolved once the laws take effect on August 1. “We expect that by the third and the fourth quarters, housing projects will be unblocked, creating a positive ripple effect in the real estate market. This will encourage people to buy and upgrade homes, leading to higher growth in the banking sector,” Anh said.