Raising cash flow for social housing construction

Reason for delays in social housing projects

Despite a 120 trillion VND support package for homeowners and investors in social housing projects, execution is still delayed. Some questions remain unanswered, such as the sorts of projects and constructions would be sponsored and for how long, as well as the eligibility requirements for eligible recipients. Provinces and cities have just lately begun to apply this, causing delays in implementation.

Furthermore, due to the more rigorous legal procedures compared to commercial housing, real estate companies are hesitant to participate in social housing developments. They must demonstrate that the projects meet the criteria for social housing, and pricing limit ations have limit ed their profitability.

Clearing off land is also a key difficulty. Before building can begin, the Decree 100/2013/N-CP requires that all inhabitants agree. As a result, if only a few homes oppose, the project will be halted, possibly for up to 5-7 years. This typical problem creates project delays and bottlenecks.

Furthermore, the incentives provided are not totally obvious and appealing to developers. Locations for social housing are frequently unfavorable, being remote from city cores and lacking in infrastructure and communication. These challenges make the creation of social housing projects difficult, and even after completion, the units may be sluggish to sell, leading the developers' capital turnover to stagnate and making them hesitant to invest further in social housing.

In terms of interest rates, the bank's policies call for a 1.5% decrease for project developers who borrow to invest in social housing, and a 2% reduction for purchasers compared to the existing average interest rate of four banks. The banks will compute the decrease by determining the average interest rate every six months.

In actuality, the reduction is only 1.5 - 2% compared to current interest rates, which is not as large as the last preferential 30 trillion VND loan package, which had interest rates ranging from 4.8 - 5%.

However, the Social Policy Bank is presently offering a 3 trillion VND package to developers and homeowners (mostly homebuyers) at an interest rate of no more than 5%.

Mr. Thinh expects that the support package would be expanded to support the development of one million social housing units as an aim, rather than being limit ed to 120 trillion VND.

Unblocking solutions

Mr. Thinh makes the following ideas to speed up the implementation of social housing development projects:

First, municipalities should develop long-term plans that clearly identify the sites and regions for social housing and worker accommodations. This will allow developers to prepare ahead of time and satisfy the standards for the finest long-term investment process.

Second, local governments must aggressively assist and take the lead in addressing land clearing concerns, allowing developers to begin development as soon as possible.

Third, simplify and explain the administrative procedures, with the goal of completing them within 6 months after the investment decision. Reduced borrowing costs and improved efficiency will come from shorter processing times.

Fourth, establish explicit eligibility requirements for eligible homeowners to guarantee that social housing reaches the intended target beneficiaries who actually require social assistance. This will discourage wealthy individuals from purchasing social housing units.

Finally, to better meet the interests of developers and homeowners, establish clearer restrictions on interest rates, preferential policies, loan terms, and payback durations. Long-term investment durations of 30-35 years are recommended for stability and best return on investment.

In addition to these steps, more detailed laws on issuing private bonds are required, allowing developers to acquire extra finance for their projects. The government may reconsider revising Decree 08/2023/ND-CP on corporate bond issuance. However, businesses must quickly rearrange their operations, prioritizing investments in social housing.

Finally, Mr. Thinh advises decreasing the interest rate adjustment time from 6 months to 3 months in order to better correlate with lowering market interest rates and provide suitable interest rates to all parties concerned.

It is envisaged that by applying these ideas, the construction of social housing would be hastened, therefore satisfying the growing demand for affordable housing and contributing to the overall growth of the housing market.