Could the VND 120,000 billion credit package be in jeopardy?

However, after three months, only VND 95 billion has been disbursed, and the funds are still awaiting allocation to projects. This situation arises due to the high loan interest rates within this credit package, which surpass the means of low-income individuals, potentially leading to a "capital shortage."

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Numerous issues persist

Money is available, yet complications persist. The credit package, introduced by four banks—Vietcombank, BIDV, Vietinbank, and Agribank—offers interest rates of 8.7 percent per annum for investors and 8.2 percent per annum for homebuyers. Aligned with the Ministry of Construction's objective to develop one million social housing units by 2030, the disbursement of VND 95 billion out of VND 120,000 billion over three months mirrors a recurring pattern of gradual implementation, reminiscent of previous support credit schemes.

Lending institutions attribute the sluggish progress to challenges in endorsing eligible project lists and disclosing project details in certain regions, deviating from the Ministry of Construction's prescribed approach. These hurdles are hampering the advancement of the VND 120,000 billion credit package. According to Nguyen Quoc Hung, General Secretary of the Vietnam Banking Association, some localities have submitted approved lists to the State Bank of Vietnam (SBV); however, upon reviewing these projects, they have failed to meet the requisite legal criteria for loan disbursement.

The imperative for social housing is undeniable, yet the sector has struggled for years. The Ministry of Construction acknowledges that several regions have neglected to reserve land for social housing, instead opting to pay fees rather than constructing these units. The implementation of the credit package has revived familiar obstacles, including land allocation challenges, inadequate local housing development planning, complex procedures for land use fee exemptions in social housing projects, and stringent criteria for potential buyers.

Banks are appealing to provincial People's Committees to streamline administrative processes pertaining to project approval, licensing, public planning, and transparent disclosure of land allocation for potential investors. This approach aims to incentivize investor participation and simultaneously address long-standing issues. Nonetheless, skeptics contend that given the historical persistence of these problems, swift resolutions are improbable, and the credit package may not perform as intended.

Additionally, the interest rates accompanying the credit package pose an impediment. The Real Estate Association of Ho Chi Minh City highlights the predicament posed by an 8.7 percent annual interest rate for investors in social housing projects, worker accommodations, and renovation endeavors. For a VND 1 billion social housing apartment, a buyer contributing 20 percent upfront (VND 200 million) and securing an 80 percent loan (VND 800 million) would face monthly payments of approximately VND 5.46 million in the initial year, coupled with a portion of the principal. The credit package's semi-annual interest rate adjustments and its five-year preferential term further contribute to buyer apprehensions.

Financial expert Dr. Nguyen Tri Hieu highlights the uncertainties surrounding buyer eligibility, income verification, past debts, and loan terms within the credit package. He estimates that with an average interest rate of 8 percent per year and a 15-year loan term, buyers would need to make monthly payments of about VND 7.5 million—requiring an income exceeding VND 15 million. Moreover, Dr. Hieu suggests that the involvement of more banks could prove beneficial.

Previously, a VND 30,000 billion credit package for social housing at a 5-7 percent interest rate engaged commercial banks through refinancing, leveraging the State Bank's lower interest rates. However, the current VND 120,000 billion package necessitates banks to employ their own capital for lending, despite offering lower interest rates and catering to the riskier demographic of low-income individuals, leading to less enthusiasm from banks for participation.

In contrast, commercial housing loans present attractive initial interest rates, less stringent criteria, and projects located conveniently with ample amenities. In contrast, social housing projects often face peripheral locations, inadequate transportation links, and potential service quality issues.

Challenges arise for buyers

Furthermore, the interest rate associated with this package presents a significant hurdle. As stated by the Real Estate Association of Ho Chi Minh City, the 8.7 percent annual interest rate applied to investors in social housing projects, worker accommodations, renovations, and rebuilding ventures proves burdensome for those with lower incomes. Consider a scenario where a social housing apartment is valued at VND 1 billion: the buyer puts down a 20 percent down payment (equivalent to VND 200 million) and secures an 80 percent loan (equivalent to VND 800 million). The bank then applies an 8.2 percent annual interest rate. In the first year, the borrower faces an average monthly payment of VND 5.46 million, alongside a portion of the principal. It's noteworthy that the home loan interest rate within this package is recalibrated every six months, and the preferential period for homebuyers lasts only five years—factors contributing to buyer insecurity.

Dr. Nguyen Tri Hieu points out that with this credit package, uncertainties revolve around determining the necessary buyer income, validating income sources, and assessing potential existing bad debts among low-income individuals. The past ambiguity regarding loan approval, loan durations, and other terms persists. Dr. Hieu's estimation is that if the average loan interest rate remains at 8 percent per year and the loan term spans 15 years, homebuyers will face a monthly payment of around VND 7.5 million to the bank. Additionally, considering living expenses, the buyer's income would need to exceed VND 15 million, a challenging threshold considering the package targets low-income demographics.

Dr. Hieu also highlights that if this credit package were truly attractive, more banks would propose participation, diverging from the current scenario where only four banks with state capital are involved. He draws a comparison to the past, where a VND 30,000 billion loan package for social housing, carrying a preferential interest rate of 5-7 percent, engaged commercial banks through refinancing sources.

In this model, the State Bank provided commercial banks with low-interest loans, allowing these banks to offer loans under this program and benefiting from a difference of about 2 percent. This simultaneous engagement is in contrast to the VND 120,000 billion package, where participating banks must tap into their own mobilized capital to facilitate lending. However, these banks are required to offer low-interest loans to low-income individuals—the riskiest segment of the economy—resulting in their diminished interest to participate.

At present, considering the financial picture, opting for a commercial property purchase offers various interest rate incentives in the initial years, even if the rates increase later on. Furthermore, loan conditions for commercial properties aren't overly strict, with a plethora of projects available, enriched with robust amenities, and often located in proximity to central areas. On the contrary, social housing projects tend to be situated far from city centers, frequently in inconvenient traffic zones, and the quality of services provided might not be guaranteed.