The government issued Resolution No. 33 to address the short-term liquidity issues facing the real estate industry.
As of the conclusion of the fourth quarter of 2012, Hanoi had fresh supply, and the mid-end condo segment in HCMC had shrunk by only about 2%.
Key points of Resolution No. 33
The State Bank of Vietnam (SBV) is tasked by Resolution No. 33 with advising credit institutions on how to examine and implement the most appropriate debt-related measures, such as rescheduling principle and interest payments or maintaining debt groups.
Besides, this resolution provides commercial banks with a VND 120 trillion credit stimulus package to boost lending to top-notch developers.
In particular, the resolution directs the SBV to take into account changing the risk factor of risk-weighted assets, which, in our opinion, could loosen limit ations on exposures to the real estate industry.
Additionally, Resolution No. 33 calls on commercial banks to cut lending rates for the real estate sector and give short-term bank loans to developers who are experiencing liquidity problems. The near-term liquidity strain on developers will likely be significantly reduced by Resolution No. 33 and Decree 08, which permit developers to reschedule bond payment obligations, giving them more time to manage their debt.
Backing the economic recovery
The SBV quickly issued two decisions on March 14, 2023, lowering key policy rates from 0.5% to 1% in response to the government's directive. As a result, Decision No. 313 maintained the refinancing rate at 6.0% but decreased the rediscount rate by 1% point to 3.5% p.a. Also, it decreased the overnight lending rate by the SBV to credit institutions from 7% to 6% p.a. Moreover, Decision No. 314 set a limit on the highest short-term lending rate that credit institutions could offer to businesses engaged in particular economic sectors, such as those in agriculture, exports, high-tech applications, and SMEs, by lowering it from 5.0% pa to 0.5% pa.
This was the first time the SBV reduced policy rates in two recent years, marking the government’s efforts to stabilize interest rates. Given the uncertainties of the global macro environment, VNDirect believes the SBV would closely watch the Fed’s next move and the domestic business environment to offer suitable monetary policies. In terms of effects on commercial banks’ deposit rates, VNDirect reckons this is still heavily dependent on the upcoming policy rate adjustment from the Fed as there is still high pressure on the VND exchange rate (after the crash of Silicon Valley Bank, the DXY has only brought the US$/VND down 0.2% ytd to 23,590). However, it expects the lower policy rates will support credit growth in the upcoming quarters given the stagnant growth of 0.77% in the first two months of 2023.
Rebalancing supply and demand
As of the conclusion of the fourth quarter of 2012, Hanoi had fresh supply, and the mid-end condo segment in HCMC had shrunk by only about 2%. By expecting to release "The National Assembly's Resolution piloted a number of policies to promote the development of social housing" while awaiting the amended Law on Housing, proposing to spend a credit package of VND120tr for social and worker housing, and pledging to build at least one million social housing units by 2030, VNDirect sees the Resolution No. 33 as making efforts to rebalance supply and demand.
Since early 2023, we have observed an increasing trend of unofficial defaults or liquidity problems among developers due to a combination of refinancing difficulties and a sharp fall in presales. By mid-February, 54 corporate bond issuers had announced late interest payments, which raised concerns over liquidity. VNDirect estimates that the VND38,500bn worth of c-bonds issued by these issuers will mature within 2023 (93% are property developers), which indicates a high possibility of default risk.
Expecting more aggressive policies
Despite the recent rush by regulators through Decree 08/2023 or Resolution No. 33 to resolve the property market risk, its effectiveness will heavily depend on the timing of their implementation, which is still an unknown factor. Meanwhile, we see some developers facing construction delays due to liquidity issues, which could lead homebuyers to refuse to pay mortgage payments and hurt the market sentiment more.
Thus, VNDirect expects to see more support policies to reopen the capital market in the next 3-6 months, ensuring the delivery of projects that are under construction. It also believes that the on-schedule Land Law of 2023, likely effective in 2H24F, should mark a turning point for the property sector as they tackle the bottlenecks in the approval of new residential projects, leading housing supply to recover gradually in 2024–25.