Experts have been called on to set up a legal framework to call for capital for real estate projects, or Vietnam will never be able to meet the demand for accommodation.

A real estate conference which gathered late last week heard that in 2008 loans provided to fund real estate projects were 132,545 billion dong, or 9.15 percent of the total of outstanding loans in the year. The figure had increased by 10 percent by June 30, 2009.

However, bank loans are not the only channel which brings capital to the real estate market

Bank loans – the unstable capital source

Real estate developers said that banks sometimes open their doors wide to real estate projects, but then close them at other times, which has caused them difficulties. Banks once tried to invite investors to borrow money, offering long term loans of up to 10-20 years. However, they will say ‘no’ to borrowers when they have difficulties in capital mobilization.

According to Ho Huu Hanh, Director of the HCM City Branch of the State Bank of Vietnam, the problem is that real estate projects need long term capital (statistics show that 70 percent of the real estate loans were long term loans), while banks do not have large amounts of long term capital. It is estimated that long term capital of banks just accounts for 19-20 percent of their mobilized capital.

Pham Anh Dung, General Director of Saigon Commercial Bank, said that Hanoi and HCM City alone need some 15-20 trillion dong in capital to fund real estate projects. Meanwhile, banks’ long term capital is limited. The State Bank of Vietnam has decided that commercial banks can use 30 percent of mobilized short term capital for long term loans instead of 40 percent as applied prior to August 10, 2009.

How about other sources? There’s no legal framework

Hanh believes that the real estate market should seek capital from different sources rather than relying on banks.

He believes that securitization of real estate is a good solution.

Nguyen Son, Director of the Market Development Department under the State Securities Commission also thinks this way, but he said that there is no legal framework for the real estate securitization.

According to Le Chi Hieu, Chairman of the Thu Duc Housing Development Company, a lot of real estate investors join forces with other investors to develop projects, because they lack capital. However, the biggest problem of this kind of investment is the conflict in interests of investors. Many real estate projects have delayed just because of arguments between investors.

Tran Kim Chung, a senior economist from the Central Institute for Economic Management (CIEM), also said that investors have been trying different ways of mobilizing capital, but government agencies have to set a legal framework for the activities. For example, people have mentioned the real estate saving fund, but there is no legal document about this kind of fund. Investors want to issue bonds to mobilize capital, but there is also no legal framework to cover this.