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 Slashing interest rates won’t rescue real estate developers

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Number of posts : 111
Registration date : 2011-03-03

PostSubject: Slashing interest rates won’t rescue real estate developers   Tue Aug 23, 2011 3:13 pm

The sky high bank loan interest rates of 26-27 percent are believed to burden real estate developers. However, analysts have pointed out that even if the interest rate goes down to zero percent, the developers would still “die” because of the rapidly increasing input costs and the big volume of unsalable products.
Statistics show that 20 billion dollars have been injected in the real estate sector. However, the ongoing projects are reportedly worth two trillion dollars. Meanwhile, hundreds of other projects will be kicked off after the Prime Minister has approved the development planning.
Experts have expressed their worries that if the current situation prolongs, Vietnam would never have enough money to implement the projects, while investors would never have enough money to consume the housing products in the future.
Real estate developers and investors both have called for help from the State, proposing the State Bank to loosen credit to rescue them. However, experts believe that even if banks now lend at zero percent in interest rates, it would still be difficult for real estate firms to exist.
Dr Le Tham Duong from the HCM City Banking University has noted that real estate firms have fallen into a dilemma. The problem lies in the fact that the current overly high interest rates have forced people to delay their house purchase plan, leaving new property products unsalable.
In fact, interest rates are just one of the 12 biggest spending items for real estate developers. The overly high interest rates have forced them to offer high discounts to attract more buyers. Some developers have continuously slashed the sale prices. However, the sale still has been going very slowly.
According to Duong, enterprises should not expect the credit loosening, because this will not happen. The government has learned a lesson one year ago, when the credit was loosened just after the first signs of the economic recovery, which then resulted in the galloping inflation later.
Pumping more capital to the real estate sector will not help solve the problem, while the government has been determined to restrict loans in the sector. As a result, only the strongest enterprises would be able to survive, while weak ones would be eliminated from the games.
The State Bank has decided that the credit growth rate in 2011 must not be higher than 20 percent, while the rate had reached seven percent in the first six months of the year. With the remaining 13 percent, the government will have to consider allocating capital in the most reasonable way, and loans will not flow to the real estate sector.
Nguyen Duc Vinh, General Director of Techcombank, in a recent interview given to local press agencies, said that the high interest rate is just one of the factors; not the basic problem behind the bad performance of businesses. He said that it is the lack of concentration of businesses in their operation and the inner problems, which have caused such big difficulties.
According to Vinh, 60 percent of enterprises are facing problems in capital balance. They have been using short term capital for long term investments, while many of them have invested money in the fields about which they do not have deep knowledge.
Nguyen Huu Cuong, Chair of the Hanoi Real Estate Club, has pointed out that the current real estate credit is a vicious circle. Real estate firms complain that they cannot borrow money from banks. However, even if they can borrow money, they still would not be able to sell products because buyers cannot borrow money to buy houses.
“Instead of lending to real estate developers to fund projects, banks should provide loans to house buyers,” Cuong said. “Only when goods sell well, will the banks be able to collect debts”.
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