Analysts dismiss half-hearted measures to revive property market

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An apartment building for low-income people in Hanoi

The central bank plans to pump VND30 trillion (US$1.4 billion) into the banking system to lend on easy terms to home buyers and social-housing developers, but analysts say it is not enough to revive the market.

According to a circular issued by the State Bank of Vietnam on March 14, buyers of low-income housing, government workers, and military personnel can borrow at just 6 percent interest for the first three years to buy commercial housing measuring less than 70 sq.m and costing no more than VND15 million per square meter and lease-purchase social housing.

The interest rate will remain low for next seven years too. But details are still sketchy.

Developers of social housing projects and those who turn commercial housing projects into social housing will also be provided with the loans.    

For the purpose, the State Bank of Vietnam will refinance five public banks Agribank, BIDV, Vietcombank, VietinBank, and Mekong Housing Bank.

Pham Sy Liem, vice chairman of the Vietnam Construction Federation, said the market would benefit from the new policy since many low-income earners would get the opportunity to buy housing.

But it would only partially help deal with the problems in the market, he said.

"[It] would not relieve all difficulties or be enough to help the market rebound."

The property market has remained frozen for the last two years after a long period of strong growth fueled by a lending spree.

Robust demand encouraged many developers to invest in higher-end housing. But an economic slowdown and soaring inflation then saddled banks with non-performing loans.

They have since dramatically cut lending, impacting property sales across the country and stalling many property developments.

Liem said the low interest is for too short a period, pointing out that in other countries home buyers can get low-interest loans for 10-20 years.

After the initial three-year period from April 15 when the circular comes into effect, when the interest rate will be 6 percent, the central bank will decide the new interest rates, which could be higher than 6 percent but still lower than the market rate.

Credit interest rates now range from 9 percent to 16 percent, while some small businesses claim they are charged at 18 percent.


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Real estate-related loans amounted to VND1,000 trillion ($47.8 billion) as of the end of August, or 57 percent of total loans, according to the Ministry of Construction.

Liem said the incentives were not very attractive.

Developers of commercial housing projects who turn them into social housing can only borrow if they can themselves bring in at least 30 percent of the capital. But how can they raise that amount when they cannot even manage to pay interest on earlier loans, he asked.

The move would not help spur demand much since it does not provide the cheap loans for buying social housing, he said.

He was referring to the fact that in Vietnam people prefer to own homes outright and paying rents goes against the preferred notion of settling down permanently in a place.

Besides, people like students and workers should get a one-time subsidy for renting or lease-purchasing social housing rather than loans, he said.

Economist Bui Kien Thanh said: "The policy will not help revive the real estate market. We should consider if the price of VND15 million per square meter, interest rate of 6 percent, and loan tenor are reasonable."

In Europe and the US, the monthly payment for buying housing on lease-purchase should not exceed 30 percent of the buyer's income.

It means that in Vietnam a person with a monthly income of, say, VND9 million can hardly buy a house in this manner.

"Thus, the VND30 trillion could help temporarily deal with the problems faced by the property market. We need more comprehensive measures so that millions of Vietnamese, who need accommodation, can buy houses."

No recovery yet

Le Xuan Nghia, former chairman of the National Financial Supervisory Commission, said the policy would not immediately impact the market since the incentives loans are targeted at a particular segment.

The debt problem, for instance, would not be quickly resolved since the debt market remains undeveloped, he said. Thus, the property market is unlikely to rebound until 2014, and the high-end segment would recover even more slowly, he added.

Stephen Wyatt, country managing director of UK-based real estate consultant Knight Frank Vietnam, said he does not expect to see a recovery in the property market in 2013 and residential values and rental values in both Ho Chi Minh City and Hanoi could continue to decrease.

"While we encourage the government to take measures to stimulate the property market, we believe this will only provide short-term relief. The reason why the property market is stagnant in Vietnam is because there has been too much stimulus and speculation in the past.

"In order to build a sustainable future, we need to get to real values, based on willing buyers and willing sellers that have actual demand.

"In general, investors want to see a stable economy and over the past 12 months the government has done an effective job in taming inflation and reducing interest rates.

"To improve confidence in the market we need to see more of the same to create a stable and sound economy."

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