After more than 10 months since its initiation, commercial banks have pledged to lend over VND 7,000 billion, yet the actual disbursement has staggered at nearly VND 700 billion.
Overcoming Hurdles in Social Housing Development
In recent discussions concerning the disbursement of the VND 120,000 billion preferential credit package, representatives of banks have highlighted numerous challenges impeding progress. These obstacles range from legal barriers associated with social housing project implementation to issues surrounding investor responsiveness, including financial capacity, collateral, and project liquidity. Moreover, the profit margin limit imposed on social housing projects, capped at 10%, fails to entice potential investors.
Despite government incentives and bank-supported solutions aimed at facilitating social housing development, the journey remains fraught with obstacles. Nguyen Viet Cuong, Chairman of Phu Cuong Group, engaged in social housing project development, acknowledges the government's policy efforts, including various incentive packages and interest rate support. However, he emphasizes the persisting challenge of cumbersome administrative procedures hindering project deployment. Indeed, some projects have encountered significant delays due to excessive red tape, with officials hesitating to take action for fear of errors and subsequent consequences, thereby stalling progress for the greater good.
The complexities surrounding land issues in social housing are compounded by challenges in pinpointing target buyers, further impeding progress in this market. Dr. Tran Du Lich, a member of the National Monetary and Policy Advisory Council, underscores the importance of available land funds in facilitating social housing development. Such availability not only offers tax incentives but also capital incentives for businesses. However, major cities like Ho Chi Minh City face a shortage of public land funds, with available plots predominantly situated in suburban areas distant from urban centers. Given that social housing buyers predominantly reside in urban areas, projects located too far away struggle to attract buyers.
As a result, businesses offering social housing products must proactively seek out buyers and establish criteria, such as possessing a certificate confirming no existing residence, demonstrating a maximum income of VND 11 million or less, and holding local residency. However, this process entails significant time and effort.
Interest rates are a significant factor contributing to the sluggish disbursement of the VND 120,000 billion package. According to a bank, one reason for the low disbursement is that businesses prefer to fund projects using their capital rather than relying on bank loans. This preference stems from the relatively high starting interest rates associated with the package, set at 8.2% per annum for individuals and 8.7% per annum for real estate traders. However, the preferential interest rate for businesses, fixed at 8% per annum, is perceived as outdated compared to prevailing market rates. Presently, some banks offer home loans at rates as low as 6.9% per annum, significantly lower than the rates offered under the VND 120,000 billion package.
Additionally, borrowers express concerns about the short-term nature of the preferential interest rate policy, which only applies for a limited period (3 years for investors and 5 years for individual customers). Upon expiration of this preferential period, the loan interest rate will be subject to mutual agreement between the bank and the customer. However, the uncertainty surrounding how banks will adjust lending interest rates post-preferential period poses a significant risk that borrowers must consider.
Addressing Hurdles in the Credit Package
The convergence of policy and banking institutions has yet to materialize regarding the VND 125,000 billion credit package. Presently, only four commercial banks with state capital and one joint-stock commercial bank have been approved to participate. This sparse participation suggests that the credit package may not be as attractive as anticipated. In recent times, credit growth has been sluggish, and banks are eager for disbursement. However, with this package, banks perceive the risk of lending to low-income customers with high-risk profiles, coupled with loan interest rates lower than the market, making it an unprofitable venture.
Amidst a myriad of barriers, the narrative surrounding the VND 120,000 billion package, specifically targeted at social housing development, has gained prominence. Presently, experts and businesses are advocating for a reduction in lending interest rates for construction investment and loans aimed at purchasing and renting social housing. Simultaneously, there are proposals for the Government to explore and enact an interest rate subsidy ranging from 1-2% for banks. This subsidy would incentivize banks to commit to maintaining specific interest rates, thereby empowering businesses to take a more proactive stance in addressing housing challenges.
In essence, to foster the development of social housing, the state must provide substantial support rather than solely relying on policy issuance and allowing the market to function autonomously. One viable approach could involve the Government proposing to the National Assembly the reallocation of the nearly undisbursed VND 40,000 billion package, which offers a 2% interest rate, to a housing support program tailored for low-income individuals. Without regulatory adjustments, commercial banks are unlikely to effectively disburse this package as anticipated, as they currently face challenges in arranging low-interest loan capital for low-income recipients. Therefore, redirecting these resources toward a dedicated housing support initiative could prove more impactful in addressing the housing needs of vulnerable populations.
