Real estate credit controls require liquidity management to prevent systemic risk

The Vietnam Real Estate Market Assessment and Research Institute (VARS IRE) warns that controlling real estate credit without accompanying liquidity management and support for struggling projects could transform liquidity risks into a crisis of confidence or even systemic risk.

Reducing corporate leverage and limiting credit concentration aims to manage risk, but effectiveness depends on timing and implementation. In markets reliant on future housing sales, sudden credit contraction can lead to cash shortages, preventing project completion and financial obligations. This creates a downward spiral where declining sales lead to reduced credit access and further loss of market trust.

VARS IRE suggests looking to China’s experience since 2022, where the focus shifted from supporting companies to prioritizing project completion and home delivery. China implemented a ‘white list’ mechanism where local authorities review eligible projects and banks prioritize capital for those capable of being finished.