Amended Circular 36: Good News for Property Market

The State Bank of Vietnam (SBV) officially issued Circular 06/2014/TT-NHNN to amend and supplement a number of articles of Circular 36/2014/TT-NHNN. The most important content to investors is the State Bank allowed the risk factor of receivable lending for real estate to be raised from 150 per cent to 250 per cent instead of 250 per cent initially proposed. Besides, the maximum ratio of short-term funds used for medium and long-term loans will be maintained at 60 per cent till the end of 2016 and then lowered to 50 per cent from January 1, 2017 and to 40 per cent from January 1, 2018. These timely adjustments of the central bank helped relieve concerns of enterprises in the current tough market.

With Circular 06/2014/TT-NHNN, the implementation roadmap is extended to two years instead of immediately reducing from 60 per cent to 40 per cent as proposed earlier. According to experts, the move by the central bank will help keep interest rates stable and reassure investors. This is the foundation for continued economic growth.

Mr Nguyen Quoc Hiep, President and CEO of GP-Invest, said that the adjustment by the central bank is absolutely justified because the original content of increasing the risk factor of the property market up to 250 per cent while lowering short-term capital and long-term loan to 40 per cent will squeeze cash flows again. This will impact the sentiment of real estate investors, making them more hesitant with the market. Thus, market liquidity will decline - an extremely bad development at this stage. The new move by the SBV eased property market investors.

He stressed, "The current issue is how real estate companies will use credit flows. If the SBV raises the risk factor or lowers short-term, medium-term and long-term loan ratios without effective management, the risk of property market collapse will be very high.”

Le Hoang Chau, Chairman of the HCM City Real Estate Association (HoREA), said the amendments to Circular 36 signalled that banks should not overuse short-term capital for medium-term and long-term loans, tighten property lending while restricting risks to system safety. Positively, this modified circular put forth a roadmap for tightening credit rather than cause shocks to market players.

Since the real estate market is very sensitive to credit information, transparent and appropriate behaviours of investors and secondary investors are the most fundamental. Although the market has passed through a difficult period and entered a stable growth phase, it is still posed to potential risks arising from rapid price increases in the past two years, especially in upmarket apartment segment.

He added that the roadmap of lowering the above lending rate from current 60 per cent to 40 per cent in 2018 is very suitable since this duration is enough for businesses to change behaviours and investment portfolio to fit the rate above. Consumers and retail investors also feel more confident about no major changes towards the end of this year.

Nevertheless, there are still concerns. According to Chau, if the roadmap was fixed as in the original Circular 06, banks and property companies might collude to boost credit lending. Business ties are quite complicated and there are groups of friendship. Group members will be treated better than other ones. As a result, other companies will find it harder to access bank loans and this may result in negative developments.

Source: vccinews