“HoREA: The 6.6% Interest Rate on Social Housing Purchase is Excessive, Recommends a Review to 3%.”

In their proposal to increase the supply of social housing and offer credit incentives to investors, buyers, and renters, the Ho Chi Minh City Real Estate Association (HoREA) recommends maintaining the interest rate for loans at 4.8% per annum as per the Prime Minister’s Decision 486. However, the association suggests that a preferable option would be to consider and apply an interest rate of 3% per annum for buyers and rent-to-buyers of social housing at the Social Policy Bank.

Simultaneously, HoREA requests that the Prime Minister consider reducing the interest rate for poor households borrowing from the Social Policy Bank from 6.6% per annum to 3-4.8% per annum to ensure consistency and alignment with reality.

This proposal is based on the fact that Decision 486 is no longer in effect, as it has been superseded by Decree 100, which came into force on August 1, 2024.

According to Decree 100, the Social Policy Bank has issued a document adjusting the interest rate for preferential loans for social housing. Under the new adjustment, the interest rate for loans is 6.6% per annum, 1.8% higher and 1.37 times higher than the interest rate before August 1, which was 4.8% per annum as per Decision 486.

With the new interest rate effective from August 1, 2024, buyers and rent-to-buyers of social housing will face increased pressure due to the significant rise in monthly interest payments.

For example, let’s consider a couple, Mr. and Mrs. A, who purchased a social housing unit for VND 1 billion and borrowed VND 800 million for 20 years at an interest rate of 4.8%. In June and July 2024, their monthly interest payment was approximately VND 3.2 million, with a principal payment of about VND 3.3 million. This resulted in a total monthly payment of VND 6.5 million for those two months and the preceding ones.

However, starting in August, with the new interest rate of 6.6% per annum, the couple has to pay VND 4.38 million in interest and VND 3.3 million in principal, making their total payment for the month VND 7.68 million. This represents an increase of VND 1.18 million. Consequently, within a year, their interest expenses will rise by approximately VND 14 million.

Mr. Le Hoang Chau, Chairman of HoREA, opined that the interest rate of 6.6% per annum stipulated in Decree 100/2024 for poor households borrowing from the Social Policy Bank is excessively high. In fact, it surpasses the current interest rates offered by commercial banks. For instance, Vietcombank offers consumer loans of up to billions of dong without collateral, requiring only proof of repayment capability, with interest rates ranging from 4.2% to 5% per annum.

Regarding the preferential policies for investors of social housing projects borrowing from the Social Policy Bank, HoREA believes that while Decree 100 provides various incentives, the preferential interest rate stipulated in the decree is 7.92% per annum for 2024, approaching the current rate of 8% per annum for the VND 120 trillion credit package.

Notably, one of the reasons for the lackluster uptake of the VND 120 trillion package is the high-interest rate, and the State Bank of Vietnam has proposed adjustments. These adjustments are expected to reduce the interest rate by 3-5% and maintain stability over a five-year cycle, while also extending the loan term to around 10-15 years.

If these proposed reductions are implemented, investors in social housing and buyers or rent-to-buyers of social housing will be more inclined to utilize the VND 120 trillion package due to its lower interest rates compared to the Social Policy Bank.

According to HoREA, if their proposal is approved, social housing developers will benefit from an interest rate of 5.76% per annum or even 3.6% per annum in 2024, as per the provisions of Decree 100.