Vietnam's real estate sector has seen a massive, continuous surge in lending over the past several years, exceeding all previous records.

According to a latest State Bank of Vietnam (SBV) report to a National Assembly panel, the sector's outstanding credit balance by the end of 2023 reached a staggering VND 2.88 quadrillion (USD 115 billion).

Rapid Rise in Real Estate Debt

The report outlines that while real estate credit stood at roughly VND 400 trillion (USD 16 billion) in 2015-2016, it has sharply accelerated in subsequent years.

This lending boom has been fueled by consumer loans for home purchases, which now account for VND 1.79 quadrillion (USD 71.6 billion) of the total debt – approximately 62%. Additionally, real estate business loans stand at VND 1.09 quadrillion (USD 43.6 billion).

Risk Factors and Concerns

The SBV's report highlights multiple causes for concern stemming from this surge.

Firstly, the real estate sector now commands 18-21% of the total outstanding credit in Vietnam's economy, concentrating risk within the financial system.

Secondly, some banks have particularly high concentrations of real estate loans, increasing the risks for both individual institutions and the wider banking system.

Lastly, the SBV notes a mismatch between long-term real estate lending and the short-term nature of banks' funding sources, which could cause liquidity problems if banks are unable to roll over their short-term debts.

The SBV has attempted to mitigate these risks with regulations, including limitations on the amount of capital banks can deploy for medium- and long-term loans. However, the effectiveness of these measures is increasingly questioned as real estate debt continues to climb.

Social Housing Still Underfunded

Amidst the boom in general property lending, social housing projects remain notably underfunded.

The Ministry of Construction has urged the SBV to promote further lending towards real estate businesses – specifically targeted to unfinished but nearly complete projects – as a way to support the market while mitigating systemic risk.

In the years ahead, how the SBV and other Vietnamese financial authorities manage the ballooning real estate debt will be a crucial factor determining the stability and health of the country's economy.