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HoREA seeks amendment to central bank’s circular

The Saigon Times

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HCMC – The HCMC Real Estate Association (HoREA) has requested the State Bank of Vietnam (SBV) to amend Circular 06/2023, citing its concerns over potential credit constraints for real estate businesses.

The circular, set to be effective from September 1, stipulates that banks cannot provide loans for capital contributions towards investment projects that are not yet qualified for business operations as per the requirements at the time the bank decides to grant the loan.

In a letter addressed to the prime minister and the SBV, HoREA highlighted its apprehensions regarding the criteria for determining the “business viability” of real estate projects. It stated that the circular’s definition of “projects ineligible for business operations” lacks consistency with existing provisions under the 2014 Real Estate Business Law.

Le Hoang Chau, chairman of HoREA, said that after investing significant capital to acquire land use rights and obtaining official approval for a project from authorities, real estate developers may require additional capital to commence construction.

When projects become ‘eligible for business operations’, it indicates that they are already completed. At this stage, developers no longer need to mobilize capital for project implementation. Instead, they may require funds to compensate for investments or seek secondary investors for further capital infusion or to share risks.

He further pointed out that if a project fulfills the requirements for business operations, the developers will not choose to borrow from banks at higher interest rates. Instead, they would opt for the most cost-effective source of funding, which is mobilizing capital from customers. This approach relieves the pressure of paying interest and principal, and developers can focus on timely completion to deliver properties to customers.

However, Article 55 of the 2014 Real Estate Business Law does not enable them to do so, as their project is ineligible for business operations.

Consequently, the circular has led to credit restrictions for residential and commercial real estate projects and urban developments, as developers can neither receive funding from banks nor customers.

HoREA said that Circular 06 does not solely impact real estate businesses with specific investment conditions but also has wider implications for overall investment and development.

The circular’s blanket application may lead to credit restrictions for other ventures, such as those operating under public-private partnership (PPP) models in the infrastructure sector as well as in the agricultural, forestry, and fishery sectors.

It states that the current ban imposed by Circular 06 could lead to a situation where real estate developers must possess sufficient capital for their projects, find a third party with sufficient capability, or attract foreign capital for investment and business collaboration. This provision creates more favorable conditions for foreign investors due to their advantage of “cheap capital,” while limiting domestic businesses’ potential on their home turf.

HoREA has urged the SBV to reevaluate the circular and consider revisions that eliminate credit restrictions for projects with appropriate legal prerequisites or those with land usage and investment decision approvals from relevant authorities.

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