Photographer: Brent Lewin/Bloomberg

Mortgages Replace Sacks of Cash as Vietnam Housing Rebounds

  • Loans surge 22% in nation known for all-cash home purchases
  • Young working professionals driving demand for mortgages

Le Trang, an office worker, and her husband Hung didn’t think they could afford a 3-bedroom apartment in a high-rise in the suburbs of Ho Chi Minh City.

The availability of a mortgage to finance the purchase of a one-billion-dong ($44,490) condo changed their course. The newly-weds secured a 15-year mortgage for the 78 square-meter (about 840 square feet) condo, joining tens of thousands of first-time buyers in Vietnam that are fueling an explosion in the $40 billion home-loan industry.

Loans to home buyers surged 22 percent this year through August, marking a shift in a country where it isn’t uncommon for buyers to plunk down sacks of money in all-cash transactions. Real estate loans, which account for about 8 percent of total bank lending, are contributing to a property rebound that’s seen home sales almost double this year. The change is being driven by demographics -- 60 percent of Vietnamese are under the age of 35 -- and rising migration into cities.

“The mortgage market in Vietnam is beginning to take off now,” said Nirukt Sapru, chief executive officer at Standard Chartered Bank Vietnam. “As the younger generation gets richer, gets better-quality jobs - which is clearly happening in Vietnam - their ability to move out of grandmother’s house increases.”

The bank estimated the country’s mortgage market is growing by about $3 billion a year. It declined to give data on its mortgage business.

Cash Payments

Just six years ago, when Indochina Land sold condominiums in a Hanoi high-rise, buyers hauled sacks filled with dong, accompanied by policemen, to finalize their home purchases, says Tony Diep, managing director of investment firm Indochina Capital. Indochina Land is the real estate division of Indochina Capital Corp.

“You’d have stacks and stacks of cash sitting on the conference room table and three money-counting machines going at the same time,” he said. ‘Mortgages are much more popular now and easy to get.”

That’s because property developers are building affordable homes with young couples in mind and teaming up with banks to offer financing.

Nam Long Investment Corp., Vietnam’s top builder of affordable homes, expects to sell 80 percent of 2,450 units through mortgages this year, compared with 30 percent just a few years ago, according to the company. More Vietnamese would tap into mortgages if banks offered fixed interest rates for the life of the loans, said Nam Long chairman Nguyen Xuan Quang. Most loans are adjustable after an introductory period.

"The mortgage market, which hasn’t been fully tapped, will continue to explode. It’s transforming the real estate sector," said Quang. "Housing demand is huge."

Nam Long’s banking partner, Ho Chi Minh City Housing Development Commercial Joint-Stock Bank, sends its loan officers to the developer’s open house events. Mortgages at HDBank, as it’s commonly known, now account for nearly 40 percent of its business, three times more than in 2012, said Tran Quoc Anh, director of the retail banking division. Its mortgage book will double within the next three years to 5 trillion dong, he said.

Young Couples

The typical mortgage candidates at HDBank are young couples in their 30s with annual incomes of $12,000 to $15,000.

“The mortgage market will only grow as the numbers of middle and upper-middle young professionals grow,” said Nguyen Le Quoc Anh, chief strategy officer at Vietnam Technological and Commercial Joint-Stock Bank, known as Techcombank. Home loans now account for one-fifth of the bank’s lending.

The rapid popularity of mortgages, coupled with ample home inventories, is raising concerns about credit risks and whether it increases the risk of a bubble.

“The next real estate bubble is coming,” said Diep of Indochina Capital. “I’m seeing a speculative fervor with long lines at showrooms, and prices are climbing higher than they should be. Many people aren’t buying to live in these units.”

More than 25,000 apartments are on sale in Ho Chi Minh City’s primary market
as of September, with more than double that entering the market through 2017,
according to Savills Vietnam. In Hanoi, nearly 25,000 apartments are on the
primary market currently, with another 28,000 coming next year."

Home sales in Hanoi jumped 80 percent in the first 11 months of the year to 17,750 units compared with a year earlier, and Ho Chi Minh City’s sales rose 90 percent to 17,050 units, according to government data.

Price Increase

Prices of Ho Chi Minh City apartments have increased 5.2 percent through November from a year ago, and Hanoi has risen 3.4 percent, according to Stephen Wyatt, the head of Jones Lang LaSalle Inc.’s Vietnam division. Prices are expected to grow as much as 2 percent each quarter in 2016, he said.

Lending interest rates have held steady at about 8 percent this year, according to Alan Pham, chief economist at VinaCapital Group Ltd. in Ho Chi Minh City.

A government program to offer 30 trillion dong of low-interest loans have spurred sales, while more than 400 transactions from foreign buyers have been posted since a law last July made it easier for foreigners and foreign companies to own homes.

Loans to home buyers rose 22 percent through Aug. this year, compared with 9.4 percent in the same period in 2012, according to central bank data.

“The market has matured compared with several years ago among developers, buyers and investors,” said Richard Leech, the Vietnam executive director of CBRE Group Inc. “They are more knowledgeable and cautious than they were before.”

For first-time home buyer Trang, excitement is also mixed with anxiety. Her 6 percent loan rate adjusts after the third year. Vietnam’s lending rates have risen above 20 percent in 2012, when inflation was also Asia’s highest.

“We’re unsure of any economic fluctuations,” she said. “My husband and I feel very anxious. It’s out of our hands.”

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