'Many people are not enthusiastic'

Công Luận•09/06/2023

Is this preferential credit package truly advantageous?

Recently, the Government approved a plan to invest in the construction of at least 1 million social housing units during the period 2021-2030. To ensure the achievement of this goal, the Government has directed the State Bank of Vietnam to implement a credit package of VND 120,000 billion and other specific credit packages for investors and homebuyers.

Shortly thereafter, the State Bank of Vietnam issued a document implementing the credit package as directed by the Prime Minister . Specifically, this credit package will provide credit at an interest rate of 8.7% for investors and 8.2% for homebuyers in social housing projects, worker housing projects, and apartment building renovation and reconstruction projects.

Interest rates on social housing loans are still too high, many people are not satisfied (Figure 1). — According to regulations, the interest rate of up to 8.2% per year on the 120 trillion VND credit package is too high and beyond the affordability of low-income urban residents. (Photo: EC)

However, this interest rate is only applied for a specific period, known as the "preferential period". During this period, developers will receive preferential loans for 3 years, while homebuyers will receive loans for 5 years.

Speaking with a reporter from the Newspaper of Journalists and Public Opinion, Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association (HoREA), welcomed the strong actions taken by the Government in implementing the project to build 1 million social housing units.

Mr. Chau argued that this 120,000 billion VND credit package is not, in essence, a preferential credit package for social housing, but merely a commercial credit package with interest rates 1.5-2% lower than the normal lending rates for investors and homebuyers in social housing projects, worker housing, and housing projects involving the renovation and reconstruction of apartment buildings.

"Because the State Bank of Vietnam's directive uses the phrase 'preferential period' and 'interest rate during the preferential period,' this has led to the misconception that this is a preferential credit package for social housing," Mr. Chau said.

Nevertheless, the Chairman of HoREA believes that while waiting for the National Assembly to pass the new Housing Law, which includes preferential credit policies for social housing, the credit package of approximately 120,000 billion VND will have a positive impact on investors of social housing and worker housing projects; or investors and homebuyers in projects to renovate and rebuild apartment buildings.

Homebuyers are not very enthusiastic.

The Chairman of HoREA acknowledged that this support package has a positive impact on investors, but its impact on homebuyers in social housing projects is very limited. This is because, according to regulations, the interest rate of the 120,000 billion VND credit package, at 8.2% per year, is too high and beyond the capacity of low-income urban residents.

"In the case of a social housing apartment priced at 1 billion VND, with a 20% down payment of 200 million VND and a loan of 800 million VND at an interest rate of 8.2% per year, borrowers would have to pay an average of 5.46 million VND per month in interest alone during the first year, in addition to repaying a portion of the principal. This makes homebuyers less enthusiastic," Mr. Chau said.

At the same time, the State Bank of Vietnam stipulated that the 8.2% interest rate on loans could only be applied for the last six months of 2023, and the new interest rate would be announced every six months. This method of calculating interest rates further increased anxiety for homebuyers.

Furthermore, the preferential period of only 5 years for the 120 trillion VND credit package for homebuyers is too short. Specifically, the 3-year "preferential period" for developers of social housing projects, worker housing projects, and apartment building renovation and reconstruction projects is only suitable for medium-sized projects but not for large-scale projects.

"The policy of providing preferential credit for buyers and renters of social housing with low interest rates and long repayment periods is a core and most common policy implemented in many countries. Loans with low interest rates and long repayment periods are offered with different terms depending on the target group, categorized by income, to provide appropriate preferential credit policies," Mr. Chau emphasized.

According to a report by the Ministry of Construction, as of early June, three months after the announcement of this credit package, nearly 100 projects had submitted applications for social housing loans.

Furthermore, Mr. Chau argued that for those with extremely low incomes who cannot accumulate the financial resources to buy or rent-to-own social housing, renting is an option. Therefore, the State needs to develop social housing for rent to ensure citizens' "right to housing" and encourage individuals and households to build houses and rooms for rent.

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