$5B credit package to stir up social housing development

The package might help start a race among property developers to develop social housing projects as they seek to take advantage of the incentive loan interest of 8.7% a year for three years, said Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association (HoREA).

As property developers are now getting loans at 11% at the lowest, the 3 percentage point incentive may encourage businesses to switch from other types of property to focus on affordable segments, he said.

Four state-owned banks had agreed to set aside VND120 trillion for lending to social housing developers and buyers at interest rates that are lower than the market average.

A typical apartment building often takes between between 18 and 36 months to build, which fits in with the duration of the incentive loan, Chau added.

Amid a shortage of affordable apartments and an oversupply of high-end homes, he said that the credit package could help balance the supply and open up more opportunities for many low income families to purchase homes.

Developers, in return, will get a chance to increase cash flows amid a "frozen" real estate market, he added.

Le Huu Nghia, director of Ho Chi Minh City-based property developer Le Thanh, said that the credit package will be most effective when the government speeds up the process of giving permits to social housing projects.

This process often takes 12 months at the earliest, which means the first social housing project to be built with the incentive loans will not begin construction before 2024, he said.

He added that the government should allow property developers of social housing projects who have borrowed loans before the package takes effect to be allowed to receive the incentive interest rate.

But Nghia is concerned that the incentive interest rates for home buyers, which is 8.2% a year for five years, is too high for many.

Buyers might be reluctant in approaching for loans as after five years they will have to negotiate with the banks for another interest rate, he said.

The rate should ideally be lowered to 5% a year for five years with the government guaranteeing to pay for the difference should the interest go higher over the following 20 or 25 years, he added.

Chau also said that the 8.2% is not a "magic wand" that helps resolve problems in the market. It at best can only untangle some knots in the current situation.

The source of the credit comes from commercial banks, and it is unreasonable to ask the lenders to bring the rate lower, he said.

Nguyen Mai, chairman of the Vietnam’s Association of Foreign Invested Enterprises, said that a breakthrough policy is needed to solve the affordable housing problem as it plays an important role in the property sector and the economy.

Under a plan recently approved by Prime Minister Pham Minh Chinh, at least one million social housing units will be built for low-income people by 2030, including 428,000 units to be completed by 2025, at a total cost of VND849 trillion.

Vietnam is estimated to need 2.4 million new social housing units by 2030, including 1.2 million units by 2025.

There are 2.7 million workers at Vietnamese industrial parks, of whom 1.2 million have housing needs.

To date, the country has completed 301 urban social housing projects, including housing for workers in industrial parks, with a total of 155,800 units.