Social Housing Credit Package Faces Challenges and Calls for Expansion
Complex Criteria for Beneficiaries
A commercial bank has recently joined the credit package, bringing the total value of the loan package to VND 125,000 billion, an increase of VND 5,000 billion from before. However, after 1 year of implementation, the disbursement results of this credit package are still low. The State Bank of Vietnam (SBV) representative reported: Currently, the VND 125,000 billion package has only disbursed VND 415 billion, which is less than 1% for 6 projects. The amount of money commercial banks have disbursed for homebuyers is also just over VND 540 million in 2 projects.
“The current credit package has an interest rate reduction of 1.5 – 2% compared to the normal lending interest rate. This reduction is funded from the commercial banks’ own resources. The beneficiaries of this package are defined by the Ministry of Construction, and the SBV only lends according to the regulations. This program may last until 2030 or until the entire VND 125,000 billion loan is disbursed,” said SBV Deputy Governor Dao Minh Tu.
According to the SBV, the reason for the slow disbursement is the limited supply of social housing. Currently, only 28 provinces and cities have announced a list of social housing, workers’ housing, and renovation and reconstruction projects for apartment buildings. Of which, the provinces have been focusing on announcements since July 2023. In total, only 68 projects have been announced under the borrowing category of this program.
Furthermore, some projects are still facing legal issues, site clearance, land use fee calculation procedures, and conversion of land use purposes. This has resulted in banks not having a basis to grant credit to project investors. Meanwhile, homebuyers and project investors alike believe that the lending interest rates are still too high, and the regulations for beneficiaries remain complex.
According to Mr. Dao Minh Tu, the VND 125,000 billion package is not the only package to develop social housing. The government also has a loan support program for social housing through the Vietnam Bank for Social Policies (supported by the state budget) with an interest rate of 4.8%, and a loan term of 15-20 years.
“In the recent past, closely following the government’s directive to find ways to further reduce interest rates, the SBV has directed commercial banks to actively implement the VND 125,000 billion package to make it a reality. However, the specific interest rate reduction will depend on each individual commercial bank, ensuring a harmonious mechanism, since the funds mobilized by commercial banks are the people’s money and banks must also ensure high efficiency when lending,” the SBV representative said.
Recommendations to Expand Eligibility for VND 125,000 Billion Package
According to the Vietnam Association of Real Estate Brokers (VARS), in the social housing segment, from 2021 to 2025, the demand is for 1.24 million units, and the plan is to develop 428,000 units; from 2025 to 2030, the demand will be 1.16 million units, and the plan is to develop 634,200 units.
However, by the end of the first quarter of 2024, Vietnam had only completed 37,868 units, or 8.9% of the 2021-2025 plan, a 4.3% increase from the end of 2023. There are 127 projects under construction, with a scale of 107,896 units, and 301 projects with new investment licenses approved, with a scale of 265,486 units.
“It is clear that the goal of completing 428,000 units within a short period of time will be difficult to achieve. For the VND 125,000 billion credit package for social housing, the disbursement of only VND 415 billion is very low,” said Dr. Le Xuan Nghia, member of the National Council on Monetary and Financial Policy.
According to Dr. Le Xuan Nghia, this is a credit package proposed by commercial banks to support the real estate market in general, including support for social housing construction. The bank is not responsible for providing capital for the market.
“In particular, the lending interest rate is not really attractive because it is currently not significantly lower than the interest rate for commercial housing loans. Ideally, the interest rate for social housing loans should only be lower or, at the very most, equal to the savings interest rate. If there are no strong and timely solutions to promote the program, even the goal of achieving the target by 2025 will be difficult to meet,” emphasized real estate expert Nguyen Hoang.
Some opinions suggest that, in essence, the VND 125,000 billion package is not a preferential credit package for social housing, but rather a commercial credit package with an interest rate that is 1.5 – 2% lower than the normal lending interest rate. For it to be a preferential credit package for social housing, it must satisfy the criteria of low interest rates and a long grace period.
Recently, the Ho Chi Minh City Real Estate Association (HoREA) requested the SBV to consider expanding the eligibility for applying for the VND 125,000 billion package to buyers of commercial houses priced at no more than VND 3.5 billion per unit.
Accordingly, HoREA has proposed that the Standing Committee of the National Assembly allocate a medium-term national budget to implement the social housing policy to provide refinancing for the Vietnam Bank for Social Policies or subsidize the interest rates for the 4 major banks: Vietinbank, Vietcombank, Agribank, and BIDV, which the SBV has designated to implement the preferential credit policy for social housing.
According to the association, the VND 125,000 billion credit package, with the participation of 5 commercial banks, is not suitable for buyers or renters of social housing, not only because they have to pay a high interest rate of 7.5%/year with a loan term of 5 years, but also because this interest rate is adjusted every 6 months and, after the grace period, the bank will apply a floating, negotiated interest rate. According to HoREA, buyers and renters of social housing are hesitant to take out loans.
“Therefore, the association proposes that the SBV expand the number of beneficiaries eligible for the VND 125,000 billion package by 2 categories to include buyers of commercial houses priced at no more than VND 3.5 billion per unit and dormitory owners who qualify for loans to build new or renovate and upgrade dormitories for workers and laborers to rent,” the HoREA representative proposed.
The association has also requested the Ministry of Construction to reinstate the earlier VND 110,000 billion credit package, with an interest rate of 4.8 – 5%, and a maximum loan term of 25 years, proposed by the Ministry of Construction on February 17, 2023, to implement the social housing policy under the 2023 Law on Housing for project investors and buyers or renters of social housing, in order to implement the program to develop at least 1 million social housing units between 2021 and 2030.