Lavish Spending in the Construction Business: Hard Nut to Crack

Hanoi’s deputy Chau Thi Thu Nha inquired, “The real estate market is on the verge of great danger, what measures is the Construction Ministry employing in order to prevent the market collapse? How to tackle a collapsed market should it occurs?” Regarding the quality of construction projects, Thai Nguyen’s deputy Le Thi Nga complained, “The quality of construction projects is of grave concern. The low-quality projects remained undetected until problems arise at these projects”

 

Minister Trinh Dinh Dung replied that the real estate mechanism is currently inappropriate given the abundance of high-end or middle range real estate projects but the lack of low-end ones. Capital for the real estate market is mainly credit-backed capital. This capital is contributed in large part by people who purchase houses while most of the major investors have a low stockholder’s equity. Therefore, when credit for real estate projects is tightened and interest rate surges, the market is frozen. The main cause is attributed to the lack of a development fund for the real estate market.

 

The Minister Dung thinks that in order to resolve these issues, there is a need to categorise projects. Projects which have not gone through the clearing ground state need to be paused. Projects which are undergoing infrastructure investment phase need to restructure to accommodate more social houses, which conforms to the strategic national housing development plan in the 2011-2020 period. In addition, apartments should be relocated to suit low-income people.

 

Most importantly, commercial buildings should be converted to social houses with support from the Government. On the other hand, banks should continue to lend money to people with real housing demand, first time buyers or buyers of social houses. At the same time, the NA should implement a lower VAT on first-time buyers.

 

Regarding the lavish spending in the construction business, as well as low-quality projects that several deputies mentioned, Minister Trinh Dinh Dung emphasised, “The lavish spending in the industry has been there for a long period of time. This is until now a hard nut to crack.” The problem is due to the current mechanism, planning, execution, checking and title transferring processes which results in loss and reduced quality at construction sites. Moreover, monitoring activities are not efficiently carried out; abilities and moralities of several groups of government employees are low. Another the cause is the “lack of a mechanism in order for the public to get involved in the monitoring and timely detection process and lack of a severe enough penalty to deter fraudulent behaviour”

 

Deputy Nguyen Thanh Tam believes, “First and foremost, the responsibility belongs to the Minister. Government’s budget has been squandered in low quality and efficiency projects”.

 

Disagreeing with the above comment, Minister Trinh Dinh Dung said that one of the causes of loss and lavish spending are the low and slow planning process. He went on to elaborate, “Since the need to build new projects comes before the planning process, we need to clear grounds for these projects first. Consequently, money set aside for clearing ground is, in many cases, even higher than the whole invested capital in the projects. For example, pre-investment study of long-distance routes is done at only some points or typical joints. When swampy areas are discovered during the study, additional money has to be poured in. Though the routes are still damaged and money has not been efficiently used, loss does not result and money does not flow into anyone’s pocket. However, the overall quality of the projects is undermined.”