Is a new loan package for social housing necessary?

>> Lifting conditions for social housing buyers

Slow loan disbursement

To implement the plan for building at least 1 million housing houses by 2030, as stated in Resolution 33/NQ-CP dated 11/03/2023, the Government entrusted the State Bank of Vietnam (SBV) to carry out the loan package of VND 120,000 billion with the participation of commercial banks for developers and buyers of projects such as social housing, workers' housing, and reconstruction of old apartments at interest rates of 1.5-2% lower than the medium and long-term loans.

However, after more than a year, despite the fact that the size of this loan package has grown to VND 130,000 billion thanks to the contributions of TPBank and VPBank, the rate of disbursement remains very low. In its report to the Prime Minister on the implementation of the aforementioned projects, the Ministry of Construction stated that the credit package of VND 120,000 billion for social housing has only been disbursed 1,144 billion, accounting for 1%.

There are numerous reasons for this slow disbursement, including the limit  ed publication of the category of social housing projects that qualify for loans; some projects are eligible but the developers do not need to borrow capital; and some face legal challenges such as site clearance and land use transfer...

Furthermore, several commercial banks mirrored the onerous beneficiary restrictions, making it impossible for residents to get favorable loans. Also, due to limit  ed output, property companies are uninterested in social housing projects.

However, according to the Ministry of Construction, even though the SBV has reduced interest rates twice, to 8% per year for developers and 7.5% per year for house purchasers, the interest rate remains high.

As a result, the Ministry of Construction asked the SBV to cut the interest rate on this loan package and establish a new loan package with interest rates less than 3-5% of the commercial loan rate and a loan period of 10-15 years.

>> What interest rate is suitable for social housing loans?

Needing a new package or adjusting old one?

Some experts agreed with the Ministry of Construction's proposal. "With the current scenario, it would take a long time to disburse the VND120,000 billion package. "We feel it is time for a specific loan package for social housing," said Pham Thi Mien, Deputy Head of VARS' Market Research, Consulting, and Investment Promotion Department.

Others, however, disagreed with this proposal, claiming that the delay in the disbursement of the VND120,000 billion package is due in part to legal limit  s on these projects, which limit   supplies. Furthermore, the restrictions governing beneficiaries are fairly rigorous...

"If the supply of social housing remains short, the project's implementation remains problematic, and the new loan package continues to put stringent criteria on beneficiaries, the disbursement will be tough to improve," one analyst stated.

In terms of interest rates, while it is widely acknowledged that the interest rate on the VND 120,000 billion package remains high, this expert stated that it is difficult to blame commercial banks when the entire capital of this credit package is derived from commercial banks' capital, which is raised from deposits of individuals and institutions. Due to high deposit rates, banks find it difficult to lend at lower interest rates.

As a result, instead of launching a new loan package, this expert suggested that the VND 120,000 billion credit package should be adjusted in the direction of expanding beneficiaries, while the state budget should compensate interest rates so that banks can lend at a lower rate, similar to the previous VND 30,000 billion social housing package.

According to Dr. Le Xuan Nghia, a member of the National Monetary and Financial Policy Advisory Council, we may also look at other countries. In Singapore, for example, people have the ability to buy homes and borrow money from banks for an attractive 30- to 36-year term at a rate of only 2.5%, with the government covering the remaining interest rate difference.