VietNamNet Bridge – Viet Nam News reporters Bich Huong and Nguyen Ngoc get opinions on a draft circular of the State Bank of Viet Nam (SBV) about lending to low-income house renters and hire-purchasers, plus investors in social housing projects, at a yearly interest rate of 6 per cent for three years.

Under the draft, low-income earners cannot get the preferential loans to buy social houses, they can only borrow money to rent or hire-purchase the social houses – raising concern about the effectiveness of the policy.

According to SBV, the proposal does not include preferential loans for low-income earners to buy social houses because Viet Nam's Law on Housing and Government's Resolution on social housing regulates only two kinds of transactions relating to social housing: rent and hire-purchase.

What do you think about this argument?

Deputy Minister of Construction Nguyen Tran Nam:

According to the 2005 Law on Housing, State-funded social housing cannot be sold but social housing funded by other sources can be sold. In fact, so far, most social housing projects have been developed by enterprises who usually ask for bank loans to invest in such projects; the Government offers incentives or support policies to encourage investors to get involved in the projects. That's why, up to now, most social houses have been offered for sale.

SBV's proposal is a move to realise Governmental Resolution 02/NQ-CP issued in January and create drastic measures to tackle difficulties for production, improve the market and solve bad debts – major problems Viet Nam's economy faced during last year's economic slowdown.

As soon as the proposal was open for comment, the Construction Ministry recommended the Government to add an article saying low-income earners could get the preferential loans to buy social houses.

The real estate market experienced a difficult period last year with high inventory and prices declining in all segments. The lack of planning and uncontrolled development resulted in a supply-demand imbalance. Supply exceeded demand in the high-class segment while demand exceeded supply in low-income housing. High inventory in real estate is still a problem, urging a restructuring of products and more importantly, measures to stimulate demand for real estate.

Money should be pumped to consumers. In this case, low-income earners should be supported to buy houses. When they have money to buy houses, it means enterprises can sell their products, then create more jobs and consume building materials, which not only boosts growth in other relevant industries but also adds to the State's budget.

If the policy works, it benefits people, enterprises and the Government and helps address difficulties of the real estate market.

Deputy Chairman from the Viet Nam National Real Estate Association Nguyen Ngoc Thanh

In fact, this part of the draft document is in accordance with the Housing Law but not really suited to actual demand.

The circular aims at balancing the relationship between supply and demand in the real estate market, in which low-income earners must be given the top priority. Therefore, this policy will not be effective if low-income earners cannot buy houses.

Sharing the same opinion with me, many social organisations have proposed reconsidering this content of the circular.

Minister-Chairman of the Government Office Vu Duc Dam made an announcement on Saturday to convey the Prime Minister's direction that low-income earners would be entitled to purchase social houses.

Loans would be at a preferential interest rate of six per cent per year for the first three years (finishing on April 15, 2016), after which the preferential rate would be set by the SBV. The maximum duration for the loan is 10 years for individuals and five years for enterprises. Do you think this is reasonable?

Nam: Many people feel hesitant to borrow loans as they are not sure about the interest rate after April 15, 2016. So the Construction Ministry suggested that the preferential interest rate should be applied in 10 years. Or after April 15, 2016, SBV could ensure that the interest rate for social housing lending would be half of the rate for commercial loans. This move would reassure potential house buyers.

Thanh: Six per cent is a suitable lending interest rate for low-income earners to get access to social houses but its application time is not reasonable.

The period of three years seems to be contradictory with our government's purpose of stable and sustainable development.

If the stable lending interest rate is kept for only three years then adjusted depending on the market change, how can we call it a stable policy and achieve the target of sustainable development?

Hence, I propose that the stable lending interest rate should be applied for at least 10 years so state policies can gain the public's trust.

Nguyen Van Tung, a resident in Ha Noi

The loan interest rate of six per cent during the first three years of the project should be maintained for a longer time, for example, five to ten years.

After this period, the State should give an interest rate ceiling suitable to low come earners, public servants, officers and professional members of the people's armed forces.

As a public servant, I really hope that the draft will soonbe adopted and implemented so that government workers can get access to social housing.

In my opinion, the duration of the loan period for social houses should last about 10 to 20 years so that those who benefit from the project can adjust their budget and have financial stability.

If a tenant can save enough money ahead of the expiration of the contractual rent-purchase term, the Government should allow them to carry out the procedures according to the provisions of Article 16 of the Housing Law dated on November 29, 2005 for being granted house ownership right certificates. This would encourage civil service employees to have a stronger attachment to the government.

At present, the living cost in urban areas is significantly higher than civil servants' salary. Therefore, this policy will have a deep social meaning if approved.

How many unsold social houses and commercial houses are there today? Can you give the actual demand for these two types of houses?

Thanh: The supply for social houses now is too small in comparison with the demand. There were 57 social construction projects in the city's plan last year but only 27 of them have been finished so far, which led to a lack of social houses.

On the contrary, over 60,000 commercial apartments have been reported to be unmarketable nationwide.

Therefore, the draft circular can solve the redundancy and set up a new balance between supply and demand in real estate in which the construction of social houses is encouraged in order to serve the real demand of people.

The development of social houses will also help to ensure social security.

The SBV draft does not mention proportions of funding for groups of beneficiaries – low income earners and businesses, even businesses who transform commercial houses into social housing ones. How should the funding be allocated to each group to increase the efficiency of loans?

Nam: As the Construction Ministry recommended, the proportion should be 65 per cent and 35 per cent. Accordingly, 65 per cent of the fund should be for State officials, armed forces and low-income earners who need to rent or hire-purchase social houses and those who want to rent and buy commercial houses with areas of less than 70sq.m each for less than VND15 per sq.m.

The rest should be given to enterprises that develop social housing projects or shift their commercial ones to social housing.

Now, it's time to stimulate real estate demand, meaning more priority should be given to individual consumers.

Lawyer Tran Ngoc Phuong, HCM City-based Hop Viet Law Company:

I also agree that the proportion of funding for each beneficiary group needs to be identified clearly to ensure the efficiency of loans as well as equality among beneficiaries.

Banks are likely to prefer offering loans to low-income earners who are State employees and in the armed forces as they can claim a stable income.

I suggest that the Government allocate at least 80 per cent of social housing loans to low income earners to buy commercial houses, of which 20 per cent would be for State employees and armed forces and 60 per cent for other low-income earners including workers. The other 20 per cent would be for investors of social housing projects or those who shift commercial housing projects to social housing ones.

Is it possible for businesses to make use of this policy to get loans but still sell houses at high prices? Who will control and manage the transfer?

Thanh: In my opinion, it is impossible to do so. Procedures will not allow investors to take advantage of this circular in that way.

When proposing the transfer, investors are obliged to submit a specific price for the social houses in their transfer document and commit not to change it.

State agencies will be in charge of supervising the transfer.

In addition, thanks to technology, consumers can easily get updates about changes in the real estate market. Thus, if investors give a price higher than VND12 million (US$570) - the price of social housing defined by the law - customers will surely discover and "boycott" them.

In this case, customers act as the second supervisor of investors.

Phuong: Under the draft, low-income earners can hire or hire-purchase commercial houses of less than 70 sq.m each that cost less than VND15 million per sq.m. So we need to take into account measures to better control real estate transaction floors. Taking advantage of loose management, house suppliers and customers could possibly agree with each other "under the table" to write a price of less than VND15 million per square metre in their contract to be eligible for Government support. This could help them evade taxes or fees.

Source: VNS