Real estate inflation may hurt economy

The real estate sector may overheat Viet Nam’s economy if left to inflate, experts warned in a conference in Ha Noi yesterday.

Ambassador for Ireland Maeve Collins urged caution in regards to Viet Nam’s growing real estate, citing Ireland’s financial problems of 2008.

“When housing bubbles burst, they can cause substantial damage to the affected economies – on some occasions when housing bubbles have burst, they have also been associated with significant disruption to the domestic financial system,” Ambassador Collins said.

“There is a risk of overheating in the property market – Viet Nam has a big population with high density and growth in urban areas exceed 35 per cent, while the Government has not yet developed a strategy for housing,” Ambassador Collins said.

Ireland’s 2008 property burst devastated the banking system when 35 billion euros were injected into two insolvent banks, and the total cost of the banking crisis may amount to 50 per cent of Ireland’s GDP.

National Financial Supervisory Committee (NFSC) Chairman Vu Viet Ngoan warned that while the Vietnamese banking sector was not large, there were a number of small banks with poor management capacity.

“The State Bank should classify banks, giving them ratings so small banks need time to re-organise themselves,” Ngoan said.

If banks were unable to restructure, the central bank could acquire or manage them, to avoid disruption to the banking system, Ngoan added.

NFSC vice chairman Le Xuan Nghia reiterated Ngoan’s concerns, stating that 70-80 per cent of capital for property projects were raised from bank loans, adding that bad debts in the real estate market represented 3 per cent of debt in the sector.

“The outstanding balance in the real estate sector as of June reached VND245 trillion (US$11.9 billion), accounting for 10 per cent of the total outstanding balance of the economy,” Nghia said.

“In addition, real estate shares have plunged 70 per cent in recent times, resulting in poor business results,” Nghia said.

He said the real estate industry had to accept the difficulties, as stabilising the economy and controlling inflation required the State to focus on manufacturers.

“It is the most effective option for the benefit of the economy as a whole,” Ngoan stated. — VNS