The problem has now been recognized by the central bank, which has at length changed its stance by lifting the capital throttle, allowing more funds to flow into the sector in an effort to rescue thousands of enterprises on the brink of bankruptcy. Although the move by SBV is seen a bit too late, it has quickly heaped praise from both experts, economists as well as entrepreneurs, who all can have a huge sigh of relief now that the ‘blood can flow through the vein again."

In harnessing inflation that was going wild last year, SBV made an unprecedented move by putting household consumption as well as property into the list of non-productive sectors, and curbing credits for all these sectors at 16% of the total outstanding loans. The decision almost choked off capital for property projects, aggravating the frozen real estate market.

But the property market does not stand alone in the economy. As property investors have to grapple with difficulties, other manufacturing industries are also adversely impacted.

Tuoi Tre in a series of articles on the economic stagnation points out that cement and steel manufacturers have seen their outlets stonewalled, with inventories rising staggeringly, while producers of other building materials such as floor tiles and roofing sheets and decorative items also fail to sell products due to the freezing real estate market.

"Real estate companies are dying on their own assets," says the title of an article on Vnexpress. The news website quotes Tran Dinh Thien, head of the Vietnam Economics Institute, as saying "real estate as the biggest asset market has reached a point of life and death."

Thien is also quoted by Phap Luat newspaper as stressing that "real estate is a huge asset market, and if this market is critically ill, the whole economy faces the danger." In reality, however, both project developers and homebuyers have been barred by the high interest rate of up to 30% a year, according to the paper.

The online paper Vietnamnet clarifies that real estate is an important eye in a chain of various industries in the economy, from steel and cement production to building materials and various other services. Extending support to real estate means benefits for other industries as well. "We believe that if difficulties are removed for the real estate sector, other industries will also benefit, creating jobs for the economy and boosting the cash flow," says the news website.

Entrepreneurs in a seminar this week right after SBV unleashed the capital flow for them complained that they have got cornered under the huge mount of debts due to the frozen market. Le Thanh Company, for example, said at the seminar that "we have become clinically dead and are breathing upon an oxygen tube," according to Sai Gon Tiep Thi. The company is currently developing two property projects at a combined cost of VND1.1 trillion, but loans from banks make up less than 1% of the total investment.

Such a grim situation prompts the central bank to bring out changes.

SBV Governor Nguyen Van Binh said in a press meeting in Hanoi on Wednesday that no credit limits are now imposed on property and household consumption, and borrowing applications in these sectors are now treated as normal as those in manufacturing sectors.

Explaining the central bank’s new decision, Binh says in Nguoi Lao Dong that "this (property market) is also a sector that is in dire need to tackle the mounting stock, appropriately promoting the cash flow." He asserts that credits for real estate currently account for only 10% of the total amount of outstanding loans, and two-thirds of such credits are collateral.

In fact, the decision to open up credits for real estate can be seen as a way of "killing two birds with a stone," as many banks now have ample funds but cannot find borrowers.

Liquidity in the banking sector, according to Thanh Nien, has improved substantially when deposits by credit institutions at SBV reach some VND60 trillion a month. The paper also says that deposits in the banking industry in the first quarter was some VND130 trillion higher than credits.

Asia Commercial Bank, for example, unveiled in a recent meeting that it had some US$3 billion for lending but could not find eligible borrowers. Meanwhile, upon the central bank’s decision, the State-owned bank BIDV has announced loans for property investors and buyers at the same interest rate as other loans, instead of between 5 and 10 percentage points higher in the past time, says Vietnamnet.

Despite certain worries that SBV has been going to extremes when unleashing funds for the property sector that may give way to instability and high inflation again, this latest move could be seen as a lifeline for players in the industry, as well as other related industries. Coming to the real estate sector’s rescue could be seen a rather late move by SBV as efforts to stave off the stagnation should have been done much earlier. However, it is better late than never.

Source: SaigonTimes.