Interest rates on social housing loans remain high, many low-income people do not dare to 'put down money'

Mr. Vu Quang Minh (from Hung Yen province) said that after many years of working, he and his wife have saved about 400 million VND. He plans to buy a social housing unit priced at 1.5 billion VND, borrowing 70%, equivalent to about 1.1 billion VND.

Mr. Quang learned about a loan package worth 1.2 trillion VND over 20 years with an interest rate of 8.2%. This means he would have to pay 10-13 million VND per month in principal and interest.

“ My wife and I earn less than 20 million VND per month. If we buy a house and pay the bank interest now, we won't have enough money to cover our living expenses and raise our two children. Having a house would be wonderful, but we don't have the strength to bear the debt; I don't know when we'll ever be able to pay it off ,” Minh worried.

Ms. Nguyen Thi Nhan (Hoang Mai, Hanoi ) also shared that although she is eligible to buy social housing, she is still worried about the interest rate of the 120,000 billion VND credit package.

According to experts, the interest rates for social housing loans under the 120 trillion VND package are still not truly preferential. (Illustrative image)

" With an income of less than 11 million VND per month, I've had to struggle to cover my family's living expenses and pay for my two children's education. The 8.2% annual interest rate on the 500 million VND loan is too high, making it impossible for me to buy social housing ," Ms. Nhan said.

Currently, the preferential credit package of 120,000 billion VND for investors and home buyers of social housing projects and worker housing projects is applying a 2%/year lower interest rate compared to the commercial interest rate, with a disbursement period until the end of 2030, mobilized from capital sources of 4 State-owned commercial banks. Accordingly, the interest rate of 8.2%/year applies to buyers and hire-purchasers of social housing, worker housing, housing in projects to renovate and rebuild apartment buildings... and 8.7%/year applies to investors of social housing projects, worker housing, projects to renovate and rebuild apartment buildings.

According to Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association (HoREA), although the interest rate of this credit package is preferential, it is still too high compared to the financial capacity of low-income urban residents.

For example, to buy a social housing apartment priced at 1 billion VND, the buyer pays 20% upfront (200 million VND) and borrows 80% (800 million VND) at an interest rate of 8.2% per year. With that loan amount, the borrower would have to pay an average of 5.46 million VND per month in the first year (not including the remaining principal repayment).

At the same time, according to Mr. Chau, the regulation that "applies a preferential loan interest rate for 5 years" and that the interest rate after the preferential period is mutually agreed upon by commercial banks and customers also makes many people hesitant to borrow money.

" A five-year preferential period is too short and does not align with the nature of preferential credit policies for social housing, which require loans at low interest rates and for long terms, as the 2014 Housing Law stipulates a maximum preferential loan term of 25 years ," Mr. Chau commented.

The Chairman of HoREA noted that, after the preferential period ends, buyers of social housing will likely have to borrow at normal commercial interest rates, and this will be a "burden" for borrowers who are low-income earners and workers.

Therefore, HoREA proposed that the Ministry of Construction continue to study and propose a preferential credit package of VND 110,000 billion (equal to about 30% of the capital demand to implement the Program of 1 million social housing units in the period of 2021-2030) under the mechanism of "recapitalization and interest rate subsidy" so that buyers and renters of social housing can borrow at a preferential interest rate of about 4.8-5%/year for a maximum period of 25 years.

Also commenting on the interest rates for social housing loans, Dr. Le Xuan Nghia, former Vice Chairman of the National Finance Committee, said that the current interest rate of 8.7% for developers and 8.2% for homebuyers is not attractive.

According to Mr. Nghia, lending interest rates for developers should be based on market interest rates minus 2%, while for homebuyers, it should be based on market interest rates minus 5%; the 5% reduction would be directly subsidized by the government to commercial banks.

Similarly, economist Nguyen Tri Hieu suggested renaming the "120,000 billion VND credit package for investors and homebuyers in social housing and worker housing projects" to "120,000 billion VND preferential interest rate loan program".

In more detail, Mr. Hieu said that the credit support package must have regulations on how long the loan period is: 5 years, 10 years or 20 years? Regarding interest rates, the preferential interest rate is only valid for 5 years, meaning 5 years after the interest rate agreed between the borrower and the lender. So, who can guarantee that the interest rate after 5 years will be lower than the current interest rate? Floating interest rates will pose risks for both borrowers and lenders, with the borrower being the risk of default and the lender being the risk of debt collection.

" It's clear that this 120 trillion VND is not as 'perfect' as the previous social housing loan support package. Therefore, this should only be a preferential loan program. As a support package, it must have more complete regulations and conditions ," Dr. Hieu stated.

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