Real estate businesses worry about the 'second punch' of Circular 06

Responding to VTC News about Circular 06 of the State Bank of Vietnam (SBV), Mr. Pham Duc Toan, General Director of EZ Real Estate Investment and Development Joint Stock Company (EZ Property) commented that in the context of the real estate market still facing difficulties, liquidity and cash flow decreasing, Circular 06 of the SBV is like a "double punch", causing many difficulties.

Adding more cases of not being able to access credit capital will certainly have a negative impact because capital flows from banks are always the main resource for home buyers, investors, and project developers.

“ The restriction on lending to certain subjects negatively affects both home buyers and home sellers in the context of the Government introducing incentive mechanisms to “unfreeze” the real estate market. Enterprises will have great difficulty in mobilizing capital through investment cooperation and shareholder restructuring. In fact, the number of unlisted enterprises is much larger than that of enterprises operating on the stock exchange ,” Mr. Toan analyzed.

Besides, restricting loans when the project is “not qualified for business” is really a puzzle for businesses because if qualified, businesses would have many other mobilization options, not to mention that nearly 90% of current projects are legally stuck and not qualified for loans according to Circular 06.

Real estate businesses are confused by Circular 06.

For PPP projects, infrastructure works... which require a large amount of capital while the revenue from capital recovery is long-term, mobilizing legal capital sources to implement the project is inevitable. However, Circular 06 blocks this capital flow because it does not allow the investor's partner (third party) to borrow capital through business cooperation, only lending when the business conditions are met, while the stage of capital need is most limited when implementing construction.

“ Therefore, the new additional contents in Circular 06 only aggravate the lack of capital for businesses and ongoing projects, reducing credit growth which was already very low in the first half of 2023 ,” Mr. Toan emphasized.

For businesses like EZ, the direct impact of Circular 06 is to reduce new investment, extend investment time for ongoing projects, and limit the use of leverage that incurs large financial costs such as bank loans and bond issuance.

In the current context, investment cooperation to share benefits and risks with financially capable units is a priority. However, Circular 06 is having a negative impact on this strategy because the projects are all in the unfinished stage, not yet qualified for business, not to mention legal problems that are still waiting for management agencies to resolve.

Sharing the same view, Mr. Nguyen Quoc Hiep, Chairman of the Board of Directors of Global Real Estate Investment Joint Stock Company (GP Invest) also said that in the context of the real estate industry being in difficulty, the Government wants to develop a stable market and applying this regulation is tightening all businesses.

Currently, the legal aspects of the projects are blocked, and when it comes to lending, banks use legal means to squeeze businesses twice. When a project reaches the stage of construction, it has to go through many legal difficulties, and businesses also have to spend hundreds of billions of dong on site clearance and land.

For real estate, land use fees and infrastructure costs account for 60-70% of the total project investment and should be lent right from the project's inception. In particular, projects with investment capital of up to thousands - tens of thousands of billions need credit capital right from the beginning.

“ If credit is tightened like this, then what can real estate expect from credit anymore, how can real estate develop anymore. This is a regulation that needs to be reconsidered ,” Mr. Hiep affirmed.

The leader of a real estate company also said that at this time, the loan conditions should be relaxed, such as only needing approval for the investment policy, the criteria for jumping into the debt group need to be adjusted to support businesses, but the bank is tightening it... The bank is like a doctor who only cares about his own health, afraid that if he takes care of too many patients, he will be affected.

Mr. Vo Hong Thang, Director of Project Development and Consulting Services (DKRA Group), said that with the issuance of Circular 06 by the State Bank, both home buyers and project developers will have their credit and borrowing conditions tightened in the real estate market.

Previously, real estate companies used business cooperation contracts to access capital and borrow capital for projects. If the company violated the law or used capital for the wrong purpose, the company had to take responsibility. With this new regulation, investors are blocked.

With personal credit, loans to compensate for finances are also limited. This makes it certainly more difficult for people to access bank capital to buy real estate in the future.

Circular 06/2023 of the State Bank clearly stipulates capital needs that credit institutions are not allowed to lend. (Illustration photo: Internet)

Recently, Circular 06/2023 of the State Bank clearly stipulates a number of capital needs that credit institutions are not allowed to lend, including:

Loans are not allowed to be used for deposits. The State Bank of Vietnam believes that the nature of savings deposits and financial proof transactions of customers must be formed from the customers' own money sources; not borrowed money. Accordingly, Circular 06 supplements the regulation that credit institutions (CIs) are not allowed to lend capital for deposits in order to ensure control of the use of borrowed capital for the right purpose and control of loan risks as well as ensure consistency with the nature of savings deposits and the nature of financial proof transactions.

Not allowed to lend to pay for the purchase of shares of unlisted enterprises: The State Bank does not allow credit institutions to lend to pay for capital contributions, purchase, or receive transfers of capital contributions of limited liability companies or partnerships; contribute capital, purchase, or receive transfers of shares of joint stock companies that are not listed on the stock market or have not registered for trading on the Upcom trading system.

Not allowed to lend to contribute capital under an ineligible contract. Circular 06 stipulates that credit institutions are not allowed to lend to pay for capital contributions under a capital contribution contract, investment cooperation contract or business cooperation contract to implement an investment project that is not eligible to be put into business according to the provisions of law at the time the credit institution decides to lend.

For investment projects that are eligible for business operation according to the provisions of law, credit institutions continue to consider lending to customers to pay for capital contributions according to capital contribution contracts, investment cooperation contracts or business cooperation contracts according to regulations.

Not allowed to lend for financial compensation: According to Circular 06, lending for financial compensation is when a credit institution lends to a customer to compensate for expenses that have been paid, paid with the customer's own capital, capital borrowed from individuals, organizations (not credit institutions) to implement a business plan, project or a plan, project to serve living needs.

The State Bank believes that lending to customers to compensate for financial losses poses risks in the use of borrowed capital due to the difficulty in assessing the suitability between the loan demand and the financial value of the customer's loan, and the authenticity of the transactions.

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Source: https://vtc.vn/doanh-nghiep-bat-dong-san-lo-cu-dam-boi-thong-tu-06-ar808071.html