Real estate valuation – MSc. Vuong Thi Anh Ngoc

Real Estate Valuation Lecture – MSc. Vuong Thi Anh Ngoc

+ Economic development: through the banking channel, capital flows into the real estate market faster, contributing to economic development in conditions of synchronous development between markets.

+ Accelerate urbanization: real estate loans help investors be more proactive in capital and boldly invest in infrastructure upgrade projects, commercial centers, high-rise buildings, etc., contributing to accelerating the industrialization and modernization of the country.

+ Increase scale and competitive advantage for businesses: real estate loans also create conditions for businesses to reduce pressure on investment capital to expand factories in order to increase scale and competitive advantage in the integration process.

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+ Create conditions for people to have better living conditions: thanks to real estate loan support programs, low-income people, civil servants, and workers have the conditions to upgrade, build or own houses, and stabilize their lives.

+ Increase outstanding loans and profits for the Bank: Real estate loans are a popular product in banks, contributing to product diversification, attracting customers in addition to the goal of being a tool to increase outstanding loans when necessary, increasing bank profits.

+ Help the state manage the real estate market: through the outstanding real estate loan balance, the state has a more general view of the development of the real estate market to have reasonable regulation.

+ Improving the efficiency of investment projects: banks have contributed to improving the efficiency of real estate investment projects because banks are consultants, payment service providers, investors contributing capital with real estate businesses... This has created a connection between real estate supply and demand in the market, contributing to the development of the real estate market.

Influencing factors:

Subjective factors

- From the Bank:

Real Estate Valuation Lecture – MSc. Vuong Thi Anh Ngoc

+ The Bank's management and administration are not consistent, lack rigor and are lax in inspection and control.

+ Bank staff's ability to assess loan applications is low, and they cannot properly assess the feasibility of the loan plan.

+ Focus on loan balance growth without regard to loan quality.

+ Due to the close relationship with the borrower, consider granting credit, not paying attention to conditions that the borrower cannot meet.

+ Lack of information about the borrower leads to inaccurate assessment of the borrower's ability to repay.

+ Not closely monitoring the customer's loan usage process leads to loans not being used for the right purpose and ineffectively.

+ When evaluating loan plans and projects, some banks often impose their subjective opinions on customers. This factor is the cause of risky situations in some commercial banks such as customers lacking investment capital and having to balance capital to pay ahead of schedule compared to the original plan.

+ Providing credit to invest in real estate with over 90% of the collateral being real estate, so the risks arising from real estate investment are chain-like and can easily create risks for collateral being real estate that is difficult to sell to recover debt.

- From the customer side:

+ Concealing the business's loss-making performance with high-profit reports to increase the bank's lending confidence.

+ Using borrowed capital for other purposes has many risks such as gold investment, stock investment...

Objective factors

+ Fluctuations in the socio-economic background

+ About legal corridor

Real Estate Valuation Lecture – MSc. Vuong Thi Anh Ngoc

+ Risks from natural conditions

+ Based on the characteristics of the real estate market

Advantages & disadvantages in real estate credit activities:

Favorable:

The advantages of real estate credit must be included in the legal basis for the real estate market and real estate credit activities in Vietnam today.

The legal corridor regulating the real estate market has been and is being made transparent with:

- The Law on Real Estate Business issued on November 25, 2014 took effect from July 1, 2015; Government Decree 76/2015/ND-CP dated September 10, 2015 detailing and guiding the implementation of the Law on Real Estate Business;

- The Housing Law was passed on November 25, 2014 by the 13th National Assembly of the Socialist Republic of Vietnam at the 8th session. The Housing Law took effect on July 1, 2015. Decree No. 99/2015/ND-CP replaced Decree 71/2010/ND-CP dated June 16, 2010 detailing and guiding the implementation of the Housing Law. This Decree details and guides the implementation of a number of contents on housing ownership, housing development, housing management, housing transactions and state management of housing stipulated in the Housing Law and the Law on Credit Institutions 2015 passed on October 20, 2015 and took effect on December 10, 2015. The Law includes provisions on real estate business. On the other hand, in the Law on Credit Institutions 2010, the criteria for distinguishing banks and non-bank credit institutions have been more clearly defined based on the scope of operations of these two types. Credit demand for the real estate market.

- The biggest advantage for real estate credit activities at commercial banks in Vietnam today is the huge demand for credit, the Vietnamese financial market is still in an underdeveloped stage, credit products are still very modest, the secondary market has not been established, so mobilizing capital from other financial institutions is extremely difficult. This advantage of commercial banks is increasingly clearer for the real estate market.

Lecture on Real Estate Valuation – Master Vuong Thi Anh Ngoc. Most of the real estate businesses in Vietnam today use credit from commercial banks and have great difficulty in mobilizing other sources of capital. Up to 80% of investment capital, business and the real estate market today is taken from commercial bank credit.

- Another reason to prove the convenience of commercial bank credit for the real estate market is that the demand for construction in Vietnam is currently very large due to poor infrastructure, rudimentary technical infrastructure, so the demand for credit from banks for investment, business and even real estate speculation.

Hard:

However, there are still difficulties such as: The legal basis for the real estate credit market in Vietnam is not complete and not consistent. The system of legal documents on real estate credit, although it has been issued in large numbers, still does not cover the contents that need to be adjusted and is not consistent. Many regulations are overlapping, contradictory, and even have very unreasonable regulations when implemented in practice. Therefore, the need for a legal document that is highly general, unified, consistent, and specifically regulates areas related to real estate credit is an urgent need and needs to be issued. Some major issues regarding the law on credit institutions as well as real estate credit are still stuck and sub-law documents cannot resolve them or if they are resolved, their effectiveness and efficiency are low, so they need to be legalized. The demand for real estate credit is not balanced.

In recent years, the demand for credit is very large, a series of tourist areas have sprung up, infrastructure has been built at a very fast speed, along with that the demand for real estate credit is very large, however, bank credit for real estate is not balanced if we divide it into 2 types:

Lecture on real estate valuation - MSc. Vuong Thi Anh Ngoc Commercial bank credit aims to stimulate supply and demand. While credit to stimulate supply has a large demand (requiring large capital to meet the construction of large-scale urban areas), real estate credit to stimulate demand is very limited. This ratio is approximately 80 - 20, meaning that bank credit is reserved for 80 VND to lend to real estate businesses to build urban areas and apartment buildings, but only lends 20 VND to those who need to buy real estate products from real estate companies. This is the difficulty in real estate credit activities.

From the pre-renovation period until now, the Vietnamese real estate market has changed a lot and gone through 3 levels of formation and development. Specifically as follows:

- Pre-renovation period (before 1987)

- Period 1987-1999: Initial level

- Period 1999-2006: Level of centralization

- Period 2006-present: Level of monetization

a. Pre-renovation period (before 1987)

- Period 1954-1986: State-owned, centralized, cooperative economy.

- Before 1960, private individuals mainly bought and sold with each other by agreement and in cash or gold and mainly not through the State.

- In 1974-1975, Hanoi piloted the first sale of houses to people on installment payments in Yen Lang, Truong Dinh, Van Chuong areas... with about 600-700 apartments. It can be said that this was the first form of housing business implemented by the state, unfortunately it had to stop later because of the war.

- 1980 (Amended Constitution) stipulates:

- Regarding land and housing, there are specific regulations: "The State ensures citizens' ownership rights to legal income, savings, housing, means of living...

Lecture on Real Estate Valuation – Master. Vuong Thi Anh Ngoc Law guarantees citizens' right to inherit property ( Article 27 of the 1980 amended Constitution )

- Housing creation began to have innovations: “Citizens have the right to have housing. The State expands the scope of housing construction, at the same time encourages and helps collectives and citizens to build housing according to general planning. The distribution of housing area managed by the State must be fair and reasonable (Article 62 of the 1980 amended Constitution).

=> It can be said that at this stage, our country began to show signs of forming a real estate market with simple, spontaneous market activities and an unofficial market due to lack of recognition from the State.

b. Period 1987-1999: Initial level

Period 1987 - 1993

• Market:

+ Most transactions are informal and spontaneous.

+ Low transaction value.

+ Few transaction objects.

• Policy and law:

- Primary market : The government allocates land and allows the transfer and sale of labor results and investment results on the allocated land.

- According to Article 3 and Article 49 of the 1987 Land Law , "Houses and other structures on land may be transferred" to facilitate housing transactions in accordance with the provisions of the Law.

- The 1991 Housing Ordinance regulates: Housing business, Land use rights associated with housing.

The 1992 Constitution stipulates: Organizations, households and individuals assigned land by the State have the right to transfer land use rights in accordance with the provisions of law.

Low-level outbreak phase: 1993 to 1995

• Market:

Real Estate Valuation Lecture – MSc. Vuong Thi Anh Ngoc

- The demand for housing, residential land and land for production and business is increasing, especially in urban areas.

- A number of joint venture projects have been invested in. Many new small urban areas have been formed.

- Land prices in new urban areas are increasing, even more than 10 times in some places.

- Real estate business transactions during this period are mainly individual activities but quite vibrant.

- Low inflation: 1993 increased only 8.5%, 1994 increased 9.5%. GDP in 1993 increased

8.1%, 1994 increased 8.8% peak 1995 increased 9.5%.

• Policy and law:

- Land Law 1993: The State officially allows people with land use rights to convert, transfer, lease, mortgage, contribute capital and inherit land use rights.

=> The Real Estate market is especially "hot" in the Land and Land Use Rights segment.

Low-level recession phase: From late 1995 to early 20001999.

Market:

- GDP in 1995 continued to maintain a very high growth rate (9.5%), however inflation began to explode when it increased to 16.9%.

- Credit growth in 1995 was only 24%, in 1996 it was 17.57%.

- GDP began to slow down from 1996 and reached its lowest level of 4.8% in 1999.

- Asian financial crisis - 1997.

- The main investment activities are building single houses in subdivision areas and selling land.

- Some real estate investment businesses are in difficulty and bankrupt.

Policy and law:

Real Estate Valuation Lecture – MSc. Vuong Thi Anh Ngoc

- Decree 18/1995/ND-CP issued on February 13, 1995 detailing the implementation of the Ordinance on the Rights and Obligations of domestic and foreign organizations assigned land and leased land by the State has made speculators hesitate. Regulations on land lease, according to which land users must pay twice (land use right transfer fee and land lease fee). Speculators must sell land to pay off debts to banks.

- The State strengthens land management.

=> Real estate market is in recession and stagnation: Land and real estate speculation is restricted, many real estate businesses go bankrupt.

c. Period 1999 – 2006: level of centralization

High-level outbreak phase: From late 1999 to early 20002003.

• Market:

- New wave of investment, as Vietnam's investment environment is assessed as stable in the context after the September 11, 2001 event.

- ODA capital continues to be committed at a high level (over 2 billion USD/year).

- In 2000, GDP reached 6.8%. Inflation in 2001-2002 was very low.

- The real estate market grew in size, scope and quantity. Many investors bought land everywhere (peak in the second quarter of 2001). Both prices and transactions increased very high during these years.

- Housing and land needs are fully met with good quality.

- Many large-scale projects were put into investment and transaction during this period.

- A lot of land was converted to other uses during this time.

This stage can be said to be the most successful stage of construction businesses.

+ Many construction businesses have become real estate companies or added real estate business functions.