As required by a tightening credit policy, banks have been urging borrowers in real estate to clear their debts, while most property developers are unable to do so, leading to major price cuts in the housing sector.

As ordered by the State Bank of Vietnam to keep outstanding loans to the real estate sector under 16 percent by December 31, banks have all jumped into a race to demand debt payments to meet the deadline.

The CEO of a commercial bank said so far this year his bank had stopped granting new loans but only focused on collecting debts.

“To ensure meeting the central bank’s deadline, we have repeatedly reminded the borrowers of their loans,” he said.

However, he admitted that most of the loans had been cleared by individual borrowers, while borrowers who were real estate investors remained a big nuisance.

A deputy CEO of a bank said bank loans were a heavy burden for property investors, who had borrowed hundreds of billions of dong at the high interest rate of up to 25 percent a year.

“Most of the time, investors have to borrow at the very first stages of the projects,” he said.

“After three to four years paying the high interests, when their apartment projects were eventually put on sale, they failed to pay the debts due to poor sale when the market suddenly became frozen,” he explained.

Weirdly, when the borrowers failed to clear their debts, it is the lenders that gave out helping hands to their debtors.

Accordingly, if the apartment projects were still unfinished, banks would continue to provide financial aids to enable the investors to bring their products to the market.

Banks would also force investors to provide promotion to attract customers and quickly recoup investment for clearing the bank loans.

An executive of a bank said there were cases when the investors who could not afford to repay their loans were forced to transfer their projects to the banks as debt payments.

With this method, many banks have managed to quickly reduce their outstanding loans to the real estate sector.

A top official at a tax agency in Ho Chi Minh City said he had signed a number of project transferring files during the last few months, with the recipients being the banks.

Debtors in steep losses, failing to repay

While banks are boosting their debt collection, many debtors, who have been operating in steep losses, have little ability to repay in this gloomy time of the real estate sector.

For instance, the Investment and Trading of Real Estate JSC (ITC) posted a VND38-billion (US$1.8 million) loss in the third quarter, while the respective Q3 losses of Phat Dat Real Estate Development Co (PDR), Van Phat Hung Co and PetroVietnam Power Land are VND7.17 billion, VND3 billion and VND4.4 billion.

Most of the real estate companies said the main causes were the bank loan burdens and the poor sales.

With the real estate market becoming increasingly depressed plus the tightening credit, many analysts said the debtors could even fail to pay the interests let alone clearing the debts.

For instance, according to PDR’s Q3 financial report, the company’s loans and debts were quoted at VND538 billion, at the average interest rate of 21.6 percent a year.

This means the company has to set aside VND9.9 billion for debt payment every month, while its revenue in the third quarter was only VND1 billion.