Unattractive Interest Rates
The State Bank representative stated that from April 2023 to the present, the State Bank has made two adjustments to the interest rates of the 120 trillion VND preferential credit package. Specifically, the preferential loan interest rate for SOE investment businesses has been reduced from 8.5% per year (April 2023) to 8.2% per year (July 2023), and 8% per year since the beginning of 2024.
Similarly, the interest rate for housing loans has also been adjusted, from 8% per year to 7.7% per year and 7.5% per year. However, the lending of the current 120 trillion VND preferential package is very low, with only 531 billion VND disbursed after one year of implementation. This amount is very low compared to the demand for SOE loans.
Mr. Nguyen Van Dinh, Chairman of the Vietnam Real Estate Brokers Association, said that the interest rate of 7.5 – 8% per year for both homebuyers and SOE investment businesses is still high, because the profits from SOE business are limited to 10%, which is always lower than commercial housing.
NoXH Dai Kim Area – Hoang Mai – Hanoi Photo: Nhu Y |
According to Mr. Dinh, it is necessary to understand the true nature of SOE investment, which is to serve the social welfare of the State, and the State should take the lead. Encouraging businesses to do it, the State must create favorable mechanisms for capital, land access to attract businesses to participate.
“An interest rate of 8% per year, while it takes 1.5 – 2 years from the start of construction to the completion of an SOE project, businesses have to bear many costs. If borrowing from banks, the project’s capital cost is also over 10%. While the profit margin of SOE is only 10%, SOE businesses are at risk of losses,” Mr. Dinh said.
Mr. Nguyen Chi Thanh, CEO of Westlake International Tower Company, said that when the average deposit interest rate of the people in commercial banks is now about 4% per year, while low-income people want to borrow to buy SOE, they have to pay “preferential” interest of 7.5% per year, which is unreasonable. “If preferential loans are for the purpose of supporting low-income people to buy SOE, then it should be maintained at a lower or equal level to the mobilized interest rates of banks. However, the current preferential interest rate of 7.5% per year is not practical,” Mr. Thanh said.
According to Mr. Thanh, the majority of low-income workers will not be able to afford the current 7.5% per year interest rate for SOE loans. The preferential interest rate for homebuyers from the 120 trillion VND preferential package should be maintained at around 5% per year. This interest rate should also be maintained steadily for a long time to support the people, instead of the current 5 years.
Mr. Tran Dinh Quan, Sales Director of Evergreen Trang Due SOE Project (Hai Phong), said that businesses are using their own capital and mobilizing from customers. “We also made preferential loan applications, but the banks themselves are reluctant to lend to this type of housing. To speed up the disbursement rate of the credit package, more interest rate reductions should be focused on borrowers of SOE,” Mr. Quan said.
Need for Determination
In an exchange with PV Money, real estate legal expert Nguyen Van Dinh said that in addition to the issue of capital with preferential interest rates, the development of SOE also depends on land funds and legal procedures.
According to Mr. Dinh, the current procedures for SOE development are complex and more difficult than commercial housing. “A legal process to implement SOE takes about 2 years, from the initial procedures to the start of construction. Not to mention, the current procedures throughout the country are all entangled in choosing investors for SOE projects. According to regulations, if the State allocates land for SOE, it will go through bidding if there are 2 or more registered investors. But if there is only one investor, direct allocation will be specified. However, bidding for SOE is also very difficult. Although there is Circular 09/2021 of the Ministry of Construction guiding the investor selection for SOE, it is hardly implemented because there are no clear criteria,” Mr. Dinh said.
Mr. Dinh affirmed that it will be difficult to build 120,000 SOEs by 2024. There must be a very high political determination of the State authorities, the supervisory role of the ministry, the sector, especially the Ministry of Construction, and the proactive role of the businesses to possibly achieve this goal. Along with that is the involvement of relevant organizations such as the State Bank, commercial banks, then there is hope to solve the “tough problem” assigned by the Government.
According to economic expert – Mr. Vu Dinh Anh, the development of SOEs has not achieved the set goals, the problem is not due to interest rates but due to irrationalities in implementing the SOE programs. According to Mr. Anh, if SOE buyers meet the conditions (not pay personal income tax), they will not be able to buy, because their income is only enough to live, so they can’t repay the principal, let alone pay interest of 6-7% per year.
“With such low income, people can only rent houses. The State should support affordable housing rentals instead of selling cheap houses as it is now. Therefore, the SOE program needs to change towards the State supporting businesses in terms of land and capital for SOE construction, as well as supporting low-income objects so that they can rent SOE housing at a suitable price. This support amount is non-refundable, not even low-interest loans. Only then can we overcome the limitations, even the shortcomings and inequalities of the current SOE program,” Mr. Anh said.
Ngoc Mai
