Real estate businesses continue to be "tied down" due to lack of capital

Capital is still one of the difficulties of real estate businesses today. According to a survey by the Vietnam Association of Realtors (VARS), more than 70% of real estate businesses reflect that mechanisms and policies to remove difficulties in capital sources have not really had an effect on business operations.

All three main cash flows of real estate businesses, from customers, bond issuance and bank credit capital, are stuck.

A report by the Private Economic Development Research Board (Institute of Economics and International Business) shows that the real estate industry has a significant ratio of interest expense to after-tax profit of enterprises at 40.2%.

This means that when doing business, the enterprise bears the main risk but the results are not much; eroded by financial costs, there is no accumulation for reinvestment.

Many real estate businesses say they currently have no access to low interest rates, especially for old loans. Commercial banks are limiting credit growth (room) and tend to prioritize customers who accept high interest rates.

Meanwhile, real estate is a sector that requires large capital in the medium and long term to operate. Investing in this sector also contains many risks, as the capital cost is too high.

Especially in the current context of "frozen" liquidity, many projects have been suspended due to legal problems. This has further increased the amount of real estate inventory.

Finance and banking expert Nguyen Tri Hieu commented: Recently, very few businesses have been able to sell products to generate revenue and profit. The operating cash flow of many businesses continues to be low.

The blockage of mobilized capital combined with negative cash flow will increase the risk of delayed principal and interest payments of real estate companies. At the same time, investors cannot sell real estate, the amount of inventory is very large and this is a serious problem of the market.

Because, if real estate businesses cannot sell their products, they will not have cash flow to reinvest. Meanwhile, banks mainly look at whether businesses have cash flow or not to lend.

Inventory is a major bottleneck in cash flow from all sides such as investors, revenue and banks. The vicious cycle of lack of capital continues to tie businesses tighter.

To remove the capital bottleneck, Chairman of the Ho Chi Minh City Real Estate Association (HoREA) Le Hoang Chau suggested: The State Bank should consider guiding commercial banks on how to understand and apply; "loosen" loan conditions to support and create conditions for real estate project investors, commercial housing, home buyers, and investors to access credit more easily in the current difficult real estate market situation.

Mr. Chau cited: The loan conditions in Article 7 of Circular 39/2016/TT-NHNN regulating lending activities of credit institutions and foreign bank branches to customers have been kept unchanged since 2016, demonstrating the reasonableness and stability of the legal regulations. However, in reality, the understanding and implementation of commercial banks are different in applying the "loan conditions."

Therefore, HoREA believes that it is necessary to innovate the understanding and implementation of commercial banks in the direction of not lowering standards but "relaxing" a little more on loan conditions.

From there, support and create conditions for real estate project investors, commercial housing, home buyers, and investors to access credit more conveniently in the current difficult real estate market situation.

Because, to borrow credit from commercial banks, investors currently have to provide many documents to prove the legality of the project such as: decision to approve the investment policy and at the same time approve the investor; approval of the detailed planning at a scale of 1/500 of the project; decision to allocate land, lease land to the project investor; construction permit of the project; documents on appraisal of construction design implemented after the basic design; assets securing the loan and the project's land use right certificate issued to the investor...

However, in the current difficult real estate market situation, Mr. Chau said that many proof procedures are unnecessary.

Specifically, investors should not be required to provide construction design appraisal documents implemented after the basic design or land use right certificates of the project, except in cases where investors provide them themselves to prove their capacity or as collateral.

“In addition, if the project has a decision approving the investment policy at the same time as approving the investor, the State Bank should request that commercial banks be able to lend the investor “to compensate for financial losses” with the loan not exceeding 30% of the total investment of the project.

For projects that have a construction permit and have started construction, commercial banks can consider lending to investors to pay for and cover project implementation costs and business operations with a loan amount not exceeding 50% of the total investment of the project," Mr. Chau proposed.

Experts noted: Difficulties have been identified and in a short time, a series of new policies have been issued promptly to support businesses to have more time to deal with internal problems.

Typically, in the construction of a credit package of 120,000 billion VND, policies related to administrative procedures, the State Bank also continuously issued Circulars opening up mechanisms for businesses to extend and postpone debt; especially the policy allowing businesses to extend the bond repayment period until at least 2024.

However, experts say that real estate businesses need more help than that because from the beginning of 2023 until now, many real estate businesses have gone bankrupt and left the market; the businesses that remain are also struggling.

Even though the pressure of principal and interest debt is pushed back from this year to next year, in a situation where businesses do not have many sources of income, or even no source of income to compensate, there are still huge potential risks.

Therefore, businesses expect the Government to continue to have stronger and more innovative policies in the coming time so that the real estate market can "warm up" again in 2024.