Residential high-rises under construction at a newly developed area in the outskirts of Hanoi
The government's plan to increase loans to potential homebuyers in hopes of giving the stagnant real estate market a much needed boost has been called unfeasible by experts who say that unless home prices come down, the loans will do little to heal the ailing sector.
The government will ask commercial banks to work with property investors to offer long-term loans to people who have genuine demand for purchasing houses to live, Prime Minister Nguyen Tan Dung told legislators earlier this month.
He said developers will be encouraged to divide large flats into smaller units that will be easier to sell.
The government also plans to lure more foreign investment to create increased demand for offices and flats, as well as consider adjusting policies to make more foreigners eligible to purchase homes in Vietnam.
Some experts are not very optimistic.
"There will be shortcomings in implementation. Offering long-term loans which will only have low interest rates for a very short time will not be that attractive to homebuyers," said Pham Sy Liem, vice chairman of the Vietnam Construction Federation.
"In many countries, people expect to get loans with low interest rates that span 10-20 years when buying a home. In our country, this is not the case," he said.
In fact, the government has already eased credit policies this year, in what Liem called a vain attempt to resuscitate the real estate market.
Some commercial banks have cooperated with property firms to offer low interest rates to homebuyers, but very few people have been able to afford to take advantage of the incentive, which only applies to a small percentage of projects.
Banks have only given out loans to projects in prime locations that are considered investments with high liquidity, Liem said.
"I don't think the government's attempt to increase lending has been effective, as not too many people are taking out these loans," said Vu Tuan Duong, general director of construction firm Licogi 13.
"Banks could lend 50 percent of an apartment's value and it still wouldn't be enough. Most ordinary people are leading difficult lives as it is, and coming up with the money to pay off the remaining 50 percent is too daunting to consider," he said.
Meanwhile, those who can afford to buy homes are dissatisfied with the choices available, Duong said.
He said speculators rushed to buy homes when the real estate market was booming and then quickly resold them to earn profits, so they didn't care about the development of infrastructure or services.
First-time homebuyers, on the other hand, carefully consider such factors and right now the infrastructure at many projects in terms of roads, hospitals and schools is insufficient, Duong said.
And prices are still way too high.
"Most of unsold units are flats over 100 square meters that cost VND3-4 billion (US$144,000-192,000), or are luxury villas," Duong said.
Echoing Duong, economist Vu Dinh Anh said the problem was that most developers focused only on building luxury homes while demand greatly increased for low-cost housing.
Normal people would need 20 years to save enough money for a low to mid-end apartment, with luxury homes totally out of reach, Anh said.
Some experts are also concerned about the government's suggestion that investors should divide and convert large flats into smaller ones to boost sales, predicting they would eventually grow into slums.
Experts estimated that some 70,000 housing units in Ho Chi Minh City and Hanoi remain unsold, VnEconomy reported in late September.
Dim outlook for 2013
According to Liem, the way to solve the real estate crisis is to create more affordable housing for lower-income Vietnamese, who still make up the majority of the population.
He also suggested development of affordable housing would ease the burden of many other sectors such as construction, steel, banking and the economy as a whole.
As of August 31, outstanding property loans in Vietnam were estimated at VND203 trillion ($9.74 billion), with non-performing loans accounting for 6.6 percent of the total, said Minister of Construction Trinh Dinh Dung, citing statistics from the State Bank of Vietnam.
Anh said the market could only recover if housing prices plummet. Prices are still too high relative to the average annual income in urban areas, which was just VND26 million ($1,250) in 2011.
Even at VND10 million per sq.m., most people cannot afford to become homeowners, he said.
Housing prices have decreased by 20-50 percent in many areas of Hanoi over the past two years.
At Duong Noi A, a new urban area in Hanoi, luxury property prices have fallen to VND35-37 million per sq.m., down from some VND70-80 million two years ago.
Some developers are just puzzled now.
"We are selling at VND11.9 million per sq.m. even though the cost of construction is VND13 million, but very few people are buying," said Le Huu Nghia, director of Le Thanh Company, the developer of an apartment complex in HCMC's Binh Tan District.
"This is supposed to be the segment with the "˜real' demand, but when we slash prices, nothing happens. We don't know what the consumer is looking for," lamented Nghia.
Liem said the property market was unlikely to rebound completely in 2013 alone, as the economic troubles of 2012 have been forecast to continue. "Without hope for a full recovery, we want to avoid allowing the housing market to slump further next year."
Vietnam's GDP growth is expected to slow to 5.2 percent this year from a 5.9 percent expansion last year, which would be the slowest rate since 1999.