It is necessary to create a package of measures to activate the real estate market in order to spur the national economy, according to Associate Prof Dr Tran Hoang Ngan, Dean of the Banking Faculty under the HCM City Economics University, and member of the National Advisory Council for Finance and Monetary Policies.
He said:
When the monetary policies were tightened, the real estate market became stagnant. The demand for accommodations has been annulled because of overly high interest rates. People still cannot purchase houses though real estate prices are decreasing because of overly high interest rates, hovering around 20% per annum. Moreover, banks do not have much medium- and long-term capital to lend people to purchase houses by installment.
The State Bank of Vietnam is trying to reduce interest rates, and it needs some more time to do that. If the situation improves, it will reduce compulsory reserves, which will help banks have more capital to fund real estate projects. This would help real estate developers resume the implementation of their projects. The demands of three parties, real estate investors, people who have real demands for accommodations and providers of capital for real estate developers, would be met.
However, the ceiling interest rate of 19.5% proves to be very high, and banks still cannot push up loaning because real estate enterprises still have old debts…
In October 2008, the State Bank of Vietnam made four decisions to help reduce lending interest rates and pump more capital into the market. The decisions will help settle two problems. First, give support in terms of interest rates in order to spiritually refresh investors after a long period of tightening their belts. Second, create a new driving force for finance investors.
If the consumer price index performs like it did in the last three months, interest rates will go down further. This will helps banks restructure mobilised capital, increase the medium- and long-term capital available for real estate projects.
The US lesson shows that risks exist when real estate enterprises mobilise capital from the stock market?
It is reasonable to rely on the stock market to mobilise capital for the stock market. Other countries have been doing this, but they have followed strict control which has led to the minimisation of risks. The finance market should act as the midwife for economic development, including the real estate market.
Why do we need to do to activate the real estate market now?
Macroeconomic problems have been stabilised, and it is now time for us to restructure production and business. We made mistakes when we let the real estate market run a high temperature and then freeze. As a result, many real estate projects have been left unfinished. Restarting the real estate market will help heighten the efficiency of capital use and create more jobs, and help push up production in other fields, including cement, steel.
One more problem. When the real estate market freezes, banks also close their doors to production and business, because real estate is mortgaged assets for loans. The recovery of the real estate market will serve as the lubricant that will make the national economy develop rapidly.
How high do you think interest rates should be to activate the real estate market?
The lending interest rates must go in accordance with the market supply and demand, which are adjusted every six or 12 months. With the world’s economic recession, the inflation rate in 2009 would not exceed 12%. The rate the government expects is 15%. As such, lending interest rates of between 12% and 15% would be feasible.
Banks now should focus on lending to people to fund their accommodation purchases. This will help the segment of the market recover soon, which will bring about the recovery of the other segments, including offices for rent.
