Why do Property Market Stimulus Packages Fail?

Along with the strong credit disbursement with the rate of 5 percent / year for low-income people, the Government of Vietnam also issued a decree on some measures to remove difficulties for production - business, market assistance, bad debt settlement, in which the Government extends objects and lending time to households and individuals up to 15 years. However, until now, the number of people accessing to loans is still very limited; and this resulted from the binding, which is widely regarded as too "tight". Only 5 commercial banks with the State capital disbursed these funds, while investors find it difficult to access the capital.

 

Currently, only over 10 percent of the VND30 trillion credit package was disbursed. Specifically, according to the Governor of the State Bank of Vietnam – Mr Nguyen Van Binh, as of 20^th September, 2014, only 7,823 businesses and individuals could access loans with a total loan commitment of VND5,900 billion, in which VND3,200 billion was disbursed. The commitment loans for individuals is VND3,100 billion, in which over VND2 trillion was disbursed. Particularly, in the Ho Chi Minh city, as of 20^th September, 2014, loan sales reached VND709.03 billion with 1,194 customers. Outstanding debt reached VND688.23 billion including VND344.44 billion for 1,192 individuals and VND343 billion for two businesses.

 

To facilitate the disbursement of the credit package, the People’s Committee of Ho Chi Minh City has suggested stabilising the interest rate of 3 percent/ year during 15 years to support customers who buy or rent social housing. However, many experts believe that the quality of houses is the most important factor which has a big effect on customers’ buying decisions. If the product does not meet the customers’ demands, they would not buy houses even the interest rate was 0 percent.

 

Besides problems related to the interest rate and product, the complexity of administrative procedures is also one of the main causes. Leader from a branch of BIDV said that in order to get the approval on disbursement, people need to prove housing status, income and repayment capacity which are certified by agencies and local governments. These procedures will take a long time, even for many cases, is not feasible, especially for freelance workers.

 

Regarding this problem, BIDV has repeatedly worked with investors to resolve these inadequacies, but the situation has not improved yet. Meanwhile, the commercial banks, as usual, have always placed the safety of liquidity on top despite of the fact that borrowers belong to the group of people accessing to the VND30 trillion credit package or not.

 

By this time, the Bank has approved a loan for 16 social housing projects and commercial housing projects reconversing into social housing, with a total commitment of over VND4,200 billion. In particular, the central bank confirmed for BIDV to disburse nearly VND1,500 billion for 13 projects. Compared with the second quarter of this year, to the end of the third quarter of 2014, BIDV’s commitment to credit lending increased by 160 percent and the loan portfolio increased by 114 percent. At the end of 30^th September, BIDV signed loan commitments to 2,586 households and individuals with VND1,160 billion. As for the organization, BIDV committed to lend money to 16 projects with more than VND3,070 billion in which BIDV disbursed 10 projects with outstanding loans of VND700 billion.

 

According to some leaders of the bank, that the disbursement progress was slowly performed is partly because just few flats meet people’s requirements. Besides that, customers’ loan documents were stuck due to the inexact or insufficient information certified by the local government in many communes. Banks themselves took the initiative to address these inadequacies in many different ways. BIDV has also promoted the contract with investors to support customers.

 

Vietcombank also associated with many investors to push up individual housing loans in the VND30 trillion capital package. About 300 customers purchasing apartments EHOME from Nam Long investor have been approved to borrow money by Vietcombank.

 

Mr Nguyen Hoang Minh, Deputy Director of the Agricultural Bank in Ho Chi Minh city said that the inadequacies in administrative procedures in localities on the stage of validating housing status or income for people in need of housing loans with low interest rates is real. The City’s State Bank has directed local governments to quickly find solutions to facilitate customers accessing loans, avoiding the situation in which bank cannot disburse only because of those procedures. 

 

Dr Tran Du Lich, Member of National Financial and Monetary Policy Advisory Council said that it is quite hard to accelerate the process of disbursement because of limitations in housing quality and the carefulness of banks in making up lending decisions based on the repayment capacity. 

 

In recent years, besides the VND30 trillion credit package was launched to support real estate market, Vietnam Construction Joint Stock Commercial Bank also introduced a range of credit packages such as the VND50 trillion package or the VND70 trillion package; however, the effectiveness of these packages is not impressive. 

 

The 4-party credit package was recently launched by the State Bank aiming to solve difficulties for the real estate market, promoting the consumption of inventory, building materials. However, after almost 2 months, the product failed.

 

Recently, another credit package in buying houses for workers, public servants and the armed forces is expected to be deployed. Governor of SBV Nguyen Van Binh has approved the credit package. This support package aimed at those with above-average incomes (with a total income of US$25 million / month) to buy luxurious apartments or detached houses with the interest rate from 6-7 percent / year, up to 10 years. Hopefully, this new credit package will be effective.