Real Estate Market Defrosting: Specific Solutions Required

In recent years, Vietnam has worked out many important guidelines to defrost the real estate market with the goal of economic recovery and supplying demand-oriented housing for millions of low and middle income people. Recently, the Government has put forward a solution enabling the building of small apartments to meet the needs of a large number of low-income people; a leverage solution to initially encourage the business community. The policies set out in the recent National Assembly session are entirely feasible to revive the real estate market; however, quickly turning the policy into reality requires specific solutions. The Vietnam Association of Financial Investors (VAFI) has proposed five basic solutions, relatively simple and easy to implement, which are mainly under the Government, ministries and local authorities’ powers in order to revive the frozen real estate market.

 

According to Mr Nguyen Hoang Hai, General Secretary of VAFI, the first solution is to support low-and middle-income people receiving preferential loans at commercial banks, such as with the interest rate mechanism of the Development Bank for project investment incentives. In particular, those who buy a house worth less than VND2 billion / unit can enjoy a preferential interest rate of 7 percent / year for the first three years, the government subsidizes interest rates from 5 - 3 percent/year. The state will spend about VND8 trillion subsidizing interest rate for 3 years (2013, 2014, and 2015); this amount of money will attract investment capital of around VND120 trillion, which corresponds to about 120,000 apartments. According to VAFI, the interest subsidy mechanism for commercial banks to participate in the stimulus program will be similar to the mechanism in 2008 when the government allocated US$1 billion for subsidizing interest rates for the entire business system for a period of 1 year. However, to successfully implement the stimulus program, the registration of a preferential interest rate can only have one-year expiration.

 

Analysis of VAFI shows that in the situation of the tight state budget with multiple priorities, the state budget won't lose this VND8 trillion, because the subsidized capital is the initial advanced capital. When the stimulus program is done, it will release inventory and release the productive capacity of the real estate industry, building materials, the financial services industry and the state will collect more taxes from this stimulus program, of course, the tax increase will be much larger than the original with a new capital spending.

 

The second solution, according to VAFI, real estate prices have fallen sharply (30 percent - 60 percent), this is a great opportunity for local authorities, and especially large urban towns, to create for themselves one cheap and quality resettlement fund for the period 2013 -2020. With the current real estate market and the need to build large housing resettlement funds for urban development planning in the near future, major localities have to buy a total of about 25,000 apartments corresponding to the amount of VND 25,000 billion.

 

The question is where to get capital. Mr Hai analyzed that with the perspective of financial investors, if localities are creative, they can exploit more complementary sources and can afford to invest in 10,000 apartments; or mobilize the available financial resources and immediately from the capital of SCIC and corporate restructuring fund (managed by SCIC).

 

According to VAFI, by using funds from the SCIC, they can buy 15,000 apartments; this is a good investment while contributing to the output resolution for the real estate market and construction materials industries. To offset capital for enterprise fund arrangement, the Government should direct the ministries and SCIC to sell capital for enterprises having existing strategic partners. Selling shares in SABECO for foreign strategic partners can draw enough capital to buy 15,000 apartments (average VND1 billion / unit). However, the planned purchase of SCIC should coordinate with local authorities to create a fund for future resettlement.

 

The third solution, according to VAFI, is that the State Bank should lower interest rates for foreign currency deposits to 1 percent/ year, then 0 percent / year. In two years, the policy to control interest rate on foreign currency deposits has succeeded beyond expectations (from the limits of 3 percent / year, reducing to 2 percent / year), contributing greatly to stabilize the exchange rate, increase the country's foreign exchange reserves and support the reduction of interest rates in VND. From this success, they should continue to lower interest rates in exchange for pulling US $ interest rates to the possible lowest level.

 

Mr Hai said that the fourth solution is to apply value added tax to gold bars and gold jewelry at 10 percent of the purchase value. However, to ensure the rights of citizens to own gold, it should not apply the collection of VAT and excise tax on the sale of gold bars and gold jewelry. Meanwhile, the central bank should commit to buy gold bars and gold jewelry of the people (through licensed agents) at any time at international purchase price (discounted cost of reasons).

 

"If Vietnam applies the third and fourth solutions, it will completely finish goldenization and dollarization taking place in the past decades. At the same time, SBV can easily lower interest rates below 10 percent / year, short-term lending rate to about 8 percent / year, so VND mobilizing interest rates will stay at 5 percent/ year before June 30^th 2013. These solutions not only help to quickly defrost the real estate market, but also support bad debt processing and quick economic recovery,” said Mr Hai.

 

The 5th solution is that it’s necessary to form the "fire team" from the central to local levels to quickly research the real estate market. Currently, the Party, the Government and the National Assembly, a few ministries, agencies and localities are determined to defrost the real estate market in 2013. However, specific policy and rapid implementation require close cooperation from ministries and local departments, with localities, especially large urban areas such as Hanoi and Ho Chi Minh City, to understand the situation of each real estate project, determining the overall priority of projects that need to be settled immediately, with design changes, area of apartment change, and land use right certificates. At any given time, Chairman of the County, District, and People committees must also be aware of the progress of each project and the Department of District should closely follow each project to address administrative procedures.

 

"This 5^th solution is completely under the control of the ministries, agencies and localities. Expeditiously resolving the solution would be one extremely important step to revive the real estate market,” Mr Hai said.