Bank loans for social housing: Urgent regulatory revisions needed

Mr. Lê Hữu Nghĩa, Vice Chairman of HUBA

Mr. Lê Hữu Nghĩa, Vice Chairman of the Ho Chi Minh City Union of Business Associations (HUBA) and Chairman of the Lê Thành Group Ecosystem, shared that he recently submitted loan applications for housing project investments to various banks. However, he consistently encountered loan approval rejections stating that "the plan does not generate sufficient cash flow to pay principal and interest, the loan profile fails to prove repayment cash flow, and thus the loan cannot be approved." The root cause is that businesses developing social housing projects are legally limited to a fixed profit margin of just 10%. Meanwhile, bank loan interest rates are higher, and the procedures combined with construction take about 5 years. This means the annual profit is only around 2%, which is lower than simply depositing money in a bank to earn an interest rate of 5–7% per year.

Given this context, it seems that choosing to invest in social housing projects is always expected by businesses to come with credit incentives. In reality, there is a credit package worth up to 145,000 billion VND with the participation of 9 commercial banks. Could you share more about the reality of accessing this capital source?

For current social housing projects, it is very difficult for banks to extend loans because the regulated profit margin is only 10%, while lending interest rates currently exceed 10% per year. However, the temporary bottleneck preventing businesses from borrowing from banks for social housing projects is not the interest rate itself, but rather a directive from the State Bank of Vietnam (SBV). The SBV requires participating banks in the 145,000 billion VND package to only lend for social housing at an interest rate of 6.1% per year. When working with them, banks explained that they are mobilizing long-term capital (over one year) at an interest rate of 8%, so they cannot lend at 6.1% per year because they would incur a loss.

Businesses are willing to borrow at an interest rate of 12% per year and accept that level, but banks say they cannot do that either. During audits and inspections, regulations dictate that loans must be issued at 6.1% per year; if a bank disburses at 12% per year, they will face heavy penalties because this is social housing. Therefore, if they lend at low interest rates, the banks lose money; if they lend at high interest rates, they violate regulations. The safest solution for them is not to lend at all, and that is why they are not disbursing capital.

It is also worth noting that six months ago, an interest rate of 6.1% per year was appropriate because commercial lending rates back then were only around 7% per year, a difference of less than 1%. However, at this moment, commercial lending rates for real estate have risen to 12–13% per year, making the 6.1% rate no longer suitable.

In your opinion, what is the solution to resolve this issue?

I believe the SBV should abolish this fixed directive and replace it with a regulation allowing businesses to negotiate with banks for an interest rate that is roughly 1–2% lower than the average lending rate of commercial banks. This way, businesses will be more comfortable and banks will confidently sign loan contracts at interest rates of 11–12% per year. Without capital, projects will stall.

Besides that, what other solutions do you recommend to unleash the flow of capital for social housing and rental housing investments? In reality, targeted investment capital cannot rely solely on the 145,000 billion VND package.

First of all, regarding loan capital, a refinancing program needs to be established. The first implementation option is for businesses to borrow directly from commercial banks, and then the State will provide refinancing. For example, if a business borrows at an interest rate of 8% per year and the State provides 4% refinancing, the business only has to pay a 4% interest rate.

The second option is for banks to offer low-interest loans to businesses. Afterward, banks can present those loan contracts to the SBV, and the SBV will lend these exact banks an equivalent amount of money at a corresponding interest rate. For instance, if a bank lends to a business at 5% per year, the State will lend back to that bank the exact amount at 5% interest. Thus, the bank loses nothing and is fully compensated. This capital should also be excluded from the real estate credit ceiling (room) to ensure banks remain willing to lend.

From a financing perspective, beyond credit and tax/fee mechanisms, what other incentive mechanisms do you think are needed for developers of social housing and rental housing?

Specifically for Ho Chi Minh City, the locality has been tasked with developing a total of 199,400 social housing units under the "one million social housing units" blueprint, and there are mechanisms to unlock and support capital resources. According to calculations by the HCMC Department of Construction, based on the law, a business developing a project must allocate 20% of its land fund or total apartment count for social housing. However, businesses that do not fulfill this physically can choose to pay in cash, and they are allowed to build and sell commercial/service housing normally on that allocated land area. The total money collected from this mechanism in HCMC is estimated to be around 100,000 billion VND. This is a massive source of revenue that must solely be used for social housing development.

The question is, who will manage this money? At the national level, there is the National Housing Fund, while locally, there is the HCMC Housing Development Fund and HFIC (Ho Chi Minh City Investment Fund for Urban Development). The city can assign either unit to manage it, but HFIC has more experience in lending, so they will evaluate applications better and faster. The Chairman of HFIC and the Chairman of HUBA have proposed assigning this to HFIC to add supplementary funds to an expected support package of 300 billion VND over 10 years at a 0% interest rate. If possible, I recommend boldly raising it to 500 billion VND for social housing and rental housing projects, with a loan term of 10 to 15 years, where the interest rate is 0% for the first 10 years and reduced by 50% for the remaining 5 years.

Additionally, I believe we need to formally recognize the rental room segment, as boarding houses currently accommodate 80% of workers' lodging needs. We should view this as a special form of social housing. By law, social housing receives a 50% tax reduction, including VAT and corporate income tax. Therefore, the taxes currently levied on boarding house owners should also be slashed by 50% to incentivize them to generate resources to upgrade and rebuild boarding houses to meet new, cleaner, and more beautiful standards. At the same time, support should be provided to rental landlords with preferential interest rate loans to upgrade their properties, since they are the ones housing 80% of the workforce here.

Thank you very much!