Feb 15, 2013

Vietnam - Banks believed to not let real estate firms die

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VietNamNet Bridge – Commercial banks have been trying to keep real estate firms alive, because if the firms go bankrupt, banks would suffer.

This explains why no commercial bank has requested the court to declare the bankruptcy for any real estate firm so far, even though banks cannot collect debts from the clients, while firms have been on the point of death.

Real estate products unsold

A report by the Ministry of Construction showed that 42,230 houses and apartments in 50 localities have been left unsold (26,444 apartments, 15,876 houses). The inventories are worth VND111,963 billion.

The figures do not include the apartment projects which are still under construction, the projects which have been half finished due to the lack of capital.

Meanwhile, according to the State Bank of Vietnam, the outstanding loans provided to the real estate sector had reached VND207.595 billion by October 31, 2012, of which the bad debts accounted for 6.5 percent of the real estate outstanding loans.

The State Bank has also pointed out that the majority of debtors cannot make payment on schedule, because they cannot sell products in the context of the low market demand.

The National Assembly Deputies spoke at a recent National Assembly session that commercial banks have the right to request the court to declare the bankruptcy for real estate firms, so as to collect debts.

However, despite the big bad debts, no bank has done this.

Deputy Governor of the State Bank--Dang Thanh Binh, said that the relation between businesses and banks is the civil relation, which means that commercial banks will decide whether to request to declare bankruptcy for real estate firms.

Binh admitted that the percentage of cases filing for bankruptcy remains low, because of the complicated procedures. This explains why creditors don’t intend to collect money back by taking legal proceedings.

He said in many cases, commercial banks follow another way which they believes more reasonable – nurturing the debtors.

New land tax collection method would help stimulate demand?

Nguyen Ngoc Hoa, a member of the Economics Committee of the National Assembly, has suggested that it would be better to allow enterprises to pay land use fee in many stages within 50 years. If so, the production cost would be lower, which would allow to reduce the house prices, thus helping stimulate the demand.

Most recently, the Ministry of Construction has requested the National Assembly to allow cutting the VAT tax rate by 50 percent on the real estate developers who run the housing projects for the poor.

Recapitalizing VND20-40 trillion

Pouring money to develop housing projects for the poor has been cited as the main solution for the real estate market for now.

Minister of Construction--Trinh Dinh Dung, said only if the real estate products of this kind are priced at VND500 million only (an apartment has the area of 50 square meters), and if the bank loans interest rates are just 3-6 percent per annum, these would be affordable to people.

And in order to do that, Dung said, the State Bank of Vietnam needs to launch recapitalization package.

A senior official of the central bank has revealed that the bank would promulgate the decision allowing state owned banks to lend capital to fund people’s house purchases. The borrowers need to buy the apartments with the area of less than 70 square meters, and the sale price of less than VND15 million per square meter.


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