Target-driven Intervention

The answer to the debate seems to be found but the new matter of concern is how the Government will support and how support measures work.

 

The State Bank of Vietnam (SBV) Vietnam is drafting a circular in the spirit of the Government’s Resolution 02, of which the biggest concern is the loan of VND30 trillion to buyers of affordable housing and social housing. In January, the Government issued the resolution with the focus given to social housing projects. Homebuyers, preferably low-income earners and civil servants, will be offered soft lending rates while companies will have land taxes and rentals delayed and VAT and income tax reduced. In addition, authorities are also considering streamlined procedures for construction permit granting.

 

According to the latest information, homebuyers are low-income people, civil servants, and the armed forces will be offered an interest rate of 6 per cent per annum in three years for buying social housing and commercial housing with the area from 70 square metres downwards, the price of not more than VND15 million per square metre.

 

The VND30 trillion package is a boost to the moribund capital-thirsty market. Indeed, property businesses are hoping to stay alive with this lifebuoy. Although the capital does not directly flow into their projects but homebuyers, successful transactions will make money flow into selling enterprises.

 

This demonstrates the determination of the Government and relevant authorities to bail out the property market. The Ministry of Construction has rapidly allowed the subdivision of apartments to meet the needs of the market.

 

Businesses are also quick enough to convert their upmarket and midmarket projects into affordable housing with the aim of selling out their products regardless of suffering a loss or gaining a profit. What they need now is to exist.

 

According to the statistics from the Hanoi Department of Construction, beside three commercial housing projects converted into affordable housing projects for low-income earners, including the expanded Trung Van residence (invested by Hanoi Construction Investment Company), the high-rise apartment building at 143 Tran Phu Street, Ha Dong district (Song Da Urban Investment Construction and Development Joint Stock Company) and AZ Thang Long residential complex (invested by Thang Long Confectionary Company), investors have registered to convert 12 projects from commercial housing into social housing.

 

The Ho Chi Minh City Department of Construction also has proposed prices for social housing, not more than VND12 million per square metre. The conversion is considered only when projects have completed infrastructure, investors have not started the projects, and investors prove their financial capacity to complete projects. However, apartment prices in Ho Chi Minh City are generally lower than in Hanoi and investors there are quicker with the new trend, thus the gap between commercial housing and social housing is not far apart.

 

With a cheap capital source imposed a fix rate of 6 per cent per annum in the first three years, many companies will focus their projects into the scope of support.

However, lenders are facing difficulties in disbursement process. It is very hard for banks to determine low-income earners while fixed salary is smaller than non-salary income. Another difficulty is security asset as banks never want to lend a borrower without any security asset deposited as collateral.

 

The demand for homes is huge while the demand for capital is huge too but access to capital source is extremely hard. Homebuyers are posed to greater risks when the period of fixed interest rate is too short while the free rate is too long, up to seven years. It is really a big burden for low-income homebuyers because the home value is usually very big. Interest rate risks will make many people hesitant with buying decisions. Many experts recommend a longer period for fixed rates.

 

When low-income people do not dare to borrow to buy home because of interest rate risks and unattractive incentives, many people still want to borrow low-rate money to buy homes but they are not low-income people. As a result, the support does not come to right people.

 

In a broader view, no matter who borrows the money, it is right when the money is entered the market. Real estate companies can sell their products and reduced inventories. But, the target price of VND15 million per square metre is only feasible in far-lying apartments. Currently, troubled projects are usually located in business districts where prices are hovering at VND20 million per square metre and the price is not practical in business districts where most housing projects are located.

 

In a press conference in mid-April, ADB applauded the Vietnamese Government’s steps in its effort to defreeze the property market. However, Dominic Mellor, chief economist on Vietnam for ADB, frankly said the bailout may create a social security network but, for the entire real estate sector, ADB does not deem it big enough. The Government aims at social housing segment rather than the market in general, not high-end segment. "Failure is the law of nature. When they are weak, they must pay for their mistakes,” he said.

 

The conversion from upmarket and midmarket housing segments into affordable social housing segments is not simple. In Hanoi, 15 projects asked for conversion but only three of them have been licensed.

 

The National Assembly’s Commission on Economic Affairs used to recommend that the Government give a clear message that there will not be a rescue for businesses with upmarket and midmarket real estate and they will be decided by market laws. If they continue to peg prices and wait for a bailout from the Government, their expectations are false.

 

The VND30 trillion bailout is now much-awaited but it has not affected the core of the market. Each company necessarily has a way to conclude its projects, even suffering enormous losses, to pay bank debts and escape the trap.