Research on the impact of real estate prices on bank credit

The market approach is a model of simplification. It only requires the collection of sales data for comparable parcels of land that have been sold recently. These selling prices are then compared with the plots being discussed. The problem in most areas is the difficulty of finding enough recent sale prices for vacant lots. Once sufficient data has been searched, the second step involves only an assessment by an authorized individual.

Allocation method:

The allocation method specifies a certain percentage of the total asset value on the land. For example, in a residential area, the average selling price of improved properties is around $200,000. In many residential areas, the ratio of total value to land value is about 4:1. If the entire property is worth $200,000, the land is only worth $50,000. This ratio does not vary significantly in the vicinity, most appraisers & stockbrokers know their area well. In some areas where land demand and purchasing power are less than in others, the asset-to-land ratio will be 6:1 or higher.

Land development method:

This method is best applied to the appraisal of large plots of land or vacant land. Let’s say you are asked to appraise a 25-acre lot with a high probability of developing into a residential area.

The residual soil method:

The surplus soil method is known as the concept of agents in production. It is a kind of similar soil development method; however, it is best used in estimating the value of individual areas. Although this method is effectively used in assessing a commercial area, such as the service station area, restaurant area, or commercial or industrial capacity, what we are discussing here is its application to the assessment of the apartment area.

Capitalization of leased land:

This method of determining land value can be used when the property owner retains ownership of the piece of land, while leasing the right to develop and use it. Land lease regulations and rent amounts are determined by the location and type of development the site is aiming for. Most regions have regulations on rental terms. (George H. Miller and Katy R. Gallagher, 1998).

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In Vietnam, the following real estate valuation methods are applied:

Direct comparison/comparison method:

This method is based on the market price of properties that have many similarities with the real estate under consideration, to estimate the real value of that real estate, this is the method used. widely in many countries around the world (Department of Housing and Real Estate Market Management – Ministry of Construction, 2009).

The earnings method (also called the investment method or the capitalization method):

This method is based on the average future annual net income from a property, corresponding to a certain rate (%) of capital recovery for that real estate (also known as capitalization rate) to calculate value of that property. The drawback of this method itself is that the parameters to calculate the property value require high accuracy, while their determination must be carried out under pre-expected conditions, so the accuracy of the results Calculation is often limited, it can be overcome by using other valuation methods to check, in case there is a big difference in the test results, other methods must be applied to calculate (Department of Vietnam). Housing Management and Real Estate Market – Ministry of Construction, 2009).

Cost method (cost method):

This method is mainly applied to valuing properties that do not have or rarely happen to buy and sell them on the real estate market (church, school, hospital, office…). Based on the substitution principle, the cost method allows the assumption that the value of an existing asset can be measured by the cost of producing a similar asset that acts as a substitute. is the value of the replacement land plus current construction costs (Department of Housing and Real Estate Market Management – Ministry of Construction, 2009).

Profit method:

This method is used to determine the price of special properties such as cinemas, hotels and other properties whose value is primarily dependent on the profitability of that property; The limitation of this method is that it is only applied to determine the value of real estate whose activities generate profits (Department of Housing and Real Estate Market Management – Ministry of Construction, 2009).

The residual method (or hypothetical development/business analysis method):

This method is often applied to calculate the value of real estate, not according to the current state of use, but based on the purpose they will be used in the future, according to the planning approved by the competent authority. In essence, the residual method is a form of the cost method, they follow the principle: The value of land is determined on the basis of the residual value after subtracting the total cost of the real estate works from the total cost. and profit (Department of Housing and Real Estate Market Management – Ministry of Construction, 2009).

1.2. Bank credit

1.2.1 Concepts

Bank credit is an asset transaction between a bank and a borrower (which is an economic organization or individual in the economy) in which the bank transfers assets to the borrower for use in a certain period of time. agreed upon, and the borrower is obligated to unconditionally repay both principal and interest to the bank upon maturity. Stemming from the characteristics of banking activities that are business in the monetary field, transaction assets in bank credit are mainly in the form of money. However, in some forms of credit, such as financial leasing, the assets in the credit transaction can also be other assets such as fixed assets (Dan Economic, 2013). In the thesis, only bank credit in the form of money is mentioned.

1.2.2 Characteristics of bank credit

The three common features of credit are the interest rate, maturity, and payment terms. Each factor will affect how the credit will be repaid.

Interest rate:

Interest is a fee (there may be other fees and charges) that the borrower will pay to use the credit institution’s capital. Interest is calculated based on the daily balance or average monthly balance of the loan. There are two types of interest rates, fixed and flexible:

– Fixed interest rate: when the market changes, the interest rate remains fixed according to the length of the loan. For open-ended credit, when wanting to change the interest rate, the credit institution shall notify the customer in advance of this change.

– Flexible interest rate: is the rate that changes based on an index or formula. By using flexible interest rates, banks limit interest rate risk (Credit Union National Association, 2001).

Interest rates for real estate credit are usually applied at medium and long-term lending rates, depending on the bank’s regulations, but the medium and long-term lending rates are fixed each year or floating according to the fluctuations of the bank. input deposit interest rates.

Expiration time:

Loan maturity is the date on which the loan is repaid in full. Credit institutions determine the term based on loan forms, amount, collateral… For real estate loans, the term is usually medium and long-term because the assets invested are long-term real estate (except for real estate loans). case of short-term speculation).

Providing borrowers with a choice of maximum maturities helps credit institutions to tailor a loan program to their customers’ needs (Credit Union National Association, 2001).

Payment terms:

Conditions under which borrowers must repay their loans. The bank sets the terms based on the borrower’s income and ability to repay the loan as well as the loan amount, purpose, and collateral.

When borrowers have difficulties and do not meet the initial conditions for repayment, they can ask for help from credit institutions. In this case, the credit institution has two options, either an extension agreement or a refinancing loan. An extension agreement that delays the payment date gives the borrower time to recover from a layoff or illness… A refinance is paying off the borrower’s principal and creating a new loan. If the term of the new loan is extended, payments will be lower (Credit Union National Association, 2001).

1.2.3 Classification

Loans can be classified in many ways, including purpose, form of security (if any), term, method of repayment, source of capital, etc., in addition to other classifications.

Purpose:

The common classification in credit is based on the purpose or use of the loan. For example, real estate loans, commercial and industrial loans, personal loans, agricultural loans … In which real estate loans include many purposes such as buying, building, repairing houses, investing in real estate. investment projects, factories…

Secured and unsecured loans:

Secured lending refers to lending that involves certain collateral, such as a vehicle or some form of personal property. Collateral for secured debts can include many types of assets such as real estate, accounts receivable, plant and equipment, etc. The basic requirement of these types of assets is to be marketable. . The main reason a loan is required to be secured is to enable the lender to reduce the risk of loss in the event that the borrower is unwilling or unable to repay the loan at maturity.

Security is required on loans, for a number of reasons. One of the most common reasons is the borrower’s financial weakness. This weakness can manifest through a number of factors, including heavy debt, poor management, and low profitability.

– Unlike secured loans, unsecured loans are based on the borrower’s honesty, financial situation, possible future income and past repayment status. Contrary to popular belief, the largest loans, made by some banks, are on an unsecured lending basis. Some companies are seen by banks as primary borrowers, and in many cases enjoy the most favorable interest rates. These companies have effective management, products and services that are readily accepted by the market, relatively stable profits, and a strong financial position. Businesses are not the only ones that get loans on an unsecured basis, and many individuals also enjoy this privilege.

Period:

Bank loans can be classified by term in the loan agreement: short-term, medium-term and long-term. Short-term loans are loans with a term of one year or less; medium-term loans with maturities over one year and up to seven or eight years; Long-term loans have longer terms.

Refund method:

Bank loans can be repaid once or in installments. One-time repayment loans are often thought of as straight loans, meaning the contract requires a lump-sum repayment at the end of the term. Installment loans require periodic repayment of principal and interest. Refunds can be monthly, quarterly, semi-annually or annually. Installment loans are made on the principle of installment payments, throughout the contract performance term. As a result, repayment does not become as heavy a burden on the borrower as in the case of the entire loan being repaid in one go.

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