Government’s Credit Package- Crooked as a Fish Hook

After 4 months, the State Bank of Vietnam (SBV) and the Ministry of Construction officially issued a circular on the disbursement and identification of housing loans under the government's Resolution 02/NQ-CP. This is the VND30 trillion credit package to shore up the real estate market.

The credit package is disbursed through five commercial banks including BIDV, Vietcombank, VietinBank, Agribank and MHB. The 70 percent of the credit package is to support those who want to borrow money to buy housing and the remaining 30 percent is to help the investors accomplish social housing projects, and commercial projects which are now converted into social housing projects.

 

The targeted borrowers include buyers, tenants and those who rent social houses or buy commercial houses with areas smaller than 70 sq. metres each and price less than VND15 million per sq. metre. The term loan and interest subsidies will last at least 10 years for buyers and tenants, but a maximum of 5 years for investors. This duration lasts longer than previously.

 

The SBV's interest rate is announced annually; the interest rate regulated in 2013 is 6 percent per year. In every December, the SBV will determine and announce the interest rate of the next year, estimated at about 50 percent of the average lending rate of commercial banks, but less than 6 percent per year.

 

The launch of the credit package has attracted great public attention due to very high housing demand. If accessing the preferential interest rate of less than 6 percent for 10 years, many people will boldly decide to buy a house. However, how this credit package will reach those who have actual housing demand is still an open question. The previous banking loans were hard to access for borrowers. This raises the concerns whether the poor could access the credit package or not.

 

The VND30 trillion package is not large, but crooked as a fish hook for a frozen real estate market. This leads another question, that the dilemma of the real estate market does not come from the interest rate but the low buying power. In fact, the buyers still cannot afford the housing price now. The housing price in Vietnam is too costly, at more than 26 times the per capita income, while in other countries it is only 4 to 6 times the per capita income. The interest rate of 6 percent per year sounds attractive, but is not enough to solve the core problems relating to non-performing loans and the stagnation of the real estate market.

 

Many real estate experts agree that the declining interest rates and the VND30 trillion credit package just assist financing for homebuyers and investors, but are not enough to rescue the property market.

 

The real estate market still has many clouds which the lower interest rates cannot have much impact on. The buyers are less responsive to the market fluctuations. Indeed, the real estate firms, for a long time, have lost customers' confidence due to the project delays, low commitment to service quality, the ownership documents, and the ownership of property areas. Some buyers are redundant with too many options while others are skeptical about the housing price not being at the bottom.

 

Declining income due to the economic downturn also poses challenges to the market. The gloomy economy and business failures hardly prosper the real estate market, regardless of how big the credit package is.

 

An in-depth analysis of the VND30 trillion credit package shows that the government is pouring money to support the home buyers, instead the housing projects. But in fact, the homebuyers just show their interests in ready-to-live apartments with price ranging from VND700 million to VND1 billion, plus big promotions. This will make the villas and deluxe apartments slump for a longer time.

 

Many debates and discussion among stakeholders on the VND30 trillion credit package have been launched. In the last meeting between the SBV, the Ministry of Construction, and stakeholders, the issues discussed have been carefully considered. Mr Tomoyuki Kimura, the Country Director from the Asian Development Bank (ADB) in Vietnam, said that the housing bubble in Vietnam has burst and the market is at the bottom, which requires urgent solutions. According to him, the core problem of the real estate firms was caused by huge investment in premium segments. The government's bailout now focuses on social housing rather than deluxe apartments, which greatly supports low-income people and forms a sustainable real estate market.

 

The stock market has responded positively right after the announcement of the credit package. But the analysts are cautiously observing whether the VND30 trillion-bailout could warm up the real estate market with non-performing loans. Besides big investment to stimulate demand, market survival needs effective measures to help solve bad debts, make the markets healthier and restructure real estate firms. Transparency is the only way to help gain the public confidence to prop up the market struggling with the question: is it at the bottom or not?