Luxury segment dragging VN housing market At a meeting with the Prime Minister’s working group in mid-February, Minister of Construction Pham Hong Ha said the housing market was facing an oversupply of high-end developments, detracting from the market’s attraction to investors.   Many research reports also clearly show a supply and demand imbalance in the high-end home market due to a fall in demand and increase in supply. There was enough luxury housing to last until 2020, he said. Many research reports also clearly show a supply and demand imbalance in the high-end home market due to a fall in demand and increase in supply. Some had estimated the inventory at around 200,000 high-end homes in the period from 2011 and 2015, and this figure has now increased significantly.  Another report said in the last three years the market added 50,000-60,000 apartments a year. Incomplete statistics from the Việt Nam Real Estate Association show more than 4,000 projects with a combined area of 460 million square metres, which is equivalent to 3 million apartments. In HCM City, according to the Hồ Chí Minh City Real Estate Association (HoREA), in 2016 and 2017  the market added over 30,000 housing units, of which high-end homes accounted for 20.3 per cent. Market observers said though the supply of luxury housing increased sharply demand fell sharply. According to a Savills Việt Nam report, there was a 31 per cent decrease in demand for luxury apartments in 2016 . HoREA said in the first two quarters of 2016 sales of apartments in the city, mainly high-end homes, dropped by nearly 4 5 per cent. Like many other major markets in the country, HCM City is also facing many other problems in addition to the oversupply of high-end apartments, one of which is the shortage of low-cost social and commercial housing. According to Trần Ngọc Quang, general secretary of the Việt Nam Real Estate Association, in recent years developers have focused on luxury housing while 70 per cent of the demand has been in the medium- and low-priced segments.  What has caused this drop in demand for high-end homes? In recent years investors have vied with each other to invest in the segment without paying heed to the market demand, expected a significant increase in buying by foreigners and overseas Vietnamese following changes to the ownership laws and policies.                         But it has turned out that the number of foreigners and overseas Vietnamese seeking to buy homes in the country is not as high as expected. Besides, some recent changes to credit policies by the State Bank of Việt Nam have hit demand from speculators. Circular No.06 /2016/TT-NHNN, which came into effect on January 1, has raised the risk index from 150 (the lowest level) to 200 per cent, making investors worry about a cash crunch. The circular also specifies a roadmap for the maximum ratio of short-term funds used for medium- and long-term loans to be reduced from 60 per cent to 40 per cent, which has made the banks cautious about pumping money into the real estate sector. These are expected to make the lending interest rates less attractive for home buyers, and so many investors do not want to further put money into real estate products, especially luxury ones. This has resulted in an oversupply of luxury homes, raising the spectre of bad debts as developers struggle to sell. According to CBRE, in recent times more than 60 per cent of apartment buyers are speculators, with the majority depending on bank loans for their funding. HoREA revealed that loans given for developing and buying property last year were worth around VNĐ150 trillion, a year-on-year increase of 14.2 per cent. The bad debt ratio in the sector averaged 3.9 per cent. Banks eye higher credit growth, profits Vietcombank has set itself a target of 18 per cent credit growth this year and pre-tax profit of VNĐ9.2 trillion (over US$405 million). Agribank hopes to achieve 14-18 per cent credit growth and at least 10 per cent profit. Private banks too expect credit growth to be higher this year than last year, thus boosting profits. For instance, ACB targets 18 per cent expansion. This was because for a long time banks’ profits have relied mainly on credit, particularly in the case of small banks. In fact, for many small banks, 80-90 per cent of profits come from credit-related activities. Many economic sectors are forecast to recover strongly this year, possibly giving banks’ lending plans a boost. But analysts are unsure, saying stepping up lending is not an easy task. A central bank official said this year bank lending would be closely controlled, especially long- and medium-term loans to high-risk customers, including those involved in property and in build-operate-transfer and build-transfer transport projects. The central bank will also focus on improving credit quality and lending to businesses in priority sectors, meaning banks will not have many opportunities for high credit growth. A member of the Advisory Council on National Financial and Monetary Policies also said achieving high credit growth this year would be a challenge. To expand credit, it is necessary to further cut interest rates, particularly on medium- and long-medium loans, but it is not an easy task because costs continue to rise due to high deposit interest rates, he said. Anti-dollarisation efforts face challenges                    The State Bank of Việt Nam’s anti-dollarisation efforts have managed to keep the đồng-dollar exchange rate fairly steady for a long time, thus helping stabilise the monetary market. But the fight against dollarisation is expected to face challenges after the dollar began to strengthen against the đồng on both the official and unofficial markets after the US presidential election results were announced last November and the Federal Reserve recently unveiled a roadmap to raise the interest rate on US dollar. On February 23 the central bank of Việt Nam had to hike the reference VNĐ/USD exchange rate to a record high of VNĐ22,231. Following this, some banks raised their dollar selling and buying rates by VNĐ5. State giant Vietinbank hiked its buying rate to VNĐ22,795 per dollar and selling rate to VNĐ22,790. The highest selling prices of  between VNĐ22,870 and VNĐ22,880  were at ACB, Techcombank and DongABank. The volatility in the greenback and new policies announced by the new US government are expected to affect the volume of the dollars pouring into Việt Nam starting this year. Analysts said the higher value of the dollar encourages individuals and institutions including banks to deposit their dollar holdings abroad to enjoy higher interest rates since the deposit interest rate in Việt Nam is still zero. Meanwhile, the protectionism US Government will have to apply high tariffs on imports, including of Vietnamese goods. This means exports to the US are likely to drop and affect the country’s foreign exchange reserves.   Việt Nam’s foreign exchange reserves could also be affected by falling remittances by Vietnamese-Americans due to the US’s policy of tightening its immigration laws, which is likely to worry the ethnic Vietnamese living there and cause them to hoard their money. Meanwhile, dollar demand remains high in the domestic market to pay import bills. This high demand is seen from the fact that though the central bank has for a long time been planning to stop banks from lending in foreign currencies to exporters, it has not been able to achieve this. In its Circular 31, the central bank has allowed exporters to borrow in foreign currencies until the end of this year. In the event, many experts have suggested that the central bank should remove the zero interest rate policy to be able to further mobilise the greenback. But the problem with this is that it could again cause people to hoard dollars. VNS