The proportion will be reduced from the current 60 percent to 40 percent on January 1 next year, according to the State Bank of Vietnam (SBV).

It will be reduced to 37 percent by September 2020, 34 percent by September 2021, and ultimately 30 percent by September 2022.

The SBV said most medium- and long-term loans are given to property investors, and this is risky because of the inherent instability and many difficulties still faced by the sector.

"The reduction would help mitigate liquidity risks and safeguard against changing macroeconomic conditions, ensuring the stability of the banking industry, it said.

Since 2016 the SBV has been tightening lending to risk areas, which include real estate, securities and BOT infrastructure projects, by increasing interest rates and imposing stringent conditions, leaving more funds for lending to priority sectors such as manufacturing, technology and exports.

Property investors have been turning to the bond market to raise funds, issuing bonds at coupon rates of 11-13 percent, sometimes as high as 14.5 percent, Military Bank Securities said. In comparison, bonds issued by banks average 7-8 percent interest.

Economists warn that the high interest rates on property companies’ bonds come with the risk of default, and lower transparency requirements mean investors have to be even more careful.

The central bank responded in August by directing banks to stop buying corporate bonds to minimize their risks and tighten control over real estate sector borrowings.