Real estate capital faces risks from credit to bonds

DNHN - Amid global economic turbulence, the real estate market faces significant risks from bank credit and corporate bonds.

According to data from the State Bank of Vietnam, total real estate credit debt increased through the end of September 2023 but remains below expectations due to tightened bank lending. Despite high market demand, many banks are cautious about funding real estate projects, partly out of concerns over developers' repayment capabilities, especially after several prominent real estate firms struggled to complete projects.

In addition, corporate bonds have become a common capital-raising channel for real estate companies. However, the bond market shows concerning signs. Many companies have issued high-interest bonds to attract investors, but transparency around fund usage and repayment ability remains lacking. These risks have led potential investors to exercise greater caution before investing in real estate bonds.

The tightening of bank credit may lead to project delays in real estate. When bank funds dry up, developers must look for alternative capital from the bond market or investment funds, which are not always readily available or easy to access.

Liquidity risk has become severe as many real estate companies struggle to meet interest payments. This could lead to defaults, causing significant losses for banks. Forecasts indicate that if conditions do not improve, further defaults may occur soon, impacting not only the real estate sector but also other parts of the economy.

The corporate bond market has seen strong growth in recent years but is fraught with risks. Some real estate companies have issued bonds at attractive interest rates, yet lack transparency in fund utilization. This creates concerns over future repayment capabilities, especially when many investors lack a clear view of the companies' financial health.

Moreover, companies often issue long-term bonds while real estate projects typically have extended payback periods, creating a mismatch between raised funds and profit-generating capacity. Without effective capital strategies, default risks will rise, affecting investor sentiment and the broader market.

To mitigate risks in the real estate market, stakeholders need to implement essential measures. First, closer coordination between government regulators and banks in credit control and bond issuance is essential. Banks must thoroughly assess developers' financial health before lending.

Second, greater transparency in corporate bond issuance is crucial. Companies must disclose comprehensive financial and project details to build investor confidence. Furthermore, establishing stricter standards and regulations around bond issuance will help mitigate risks for investors.

Third, real estate companies should revisit their business strategies. Focusing on viable projects and ensuring profitability will improve their financial situation and foster long-term sustainability.

Real estate capital currently faces multiple challenges from both bank credit and corporate bonds. Amid economic uncertainty, these risks affect not only businesses but also the entire economy. Minimizing these risks requires close coordination among regulatory agencies, banks, and businesses.

To ensure sustainable development of the real estate market, developers must prioritize transparency, repayment ability, and effective capital strategies. Meanwhile, investors should exercise caution in deploying funds in this volatile market to safeguard their assets. Only with consensus and effort from all stakeholders can Vietnam’s real estate market overcome present challenges and move toward a stable, prosperous future.

Nghe Nhan