Low-cost homes need low-cost loans

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A view of Dong Hung 2 low-cost apartments project in Ho Chi Minh City. Photo by Dinh Son

The development of low-cost housing for rent in Ho Chi Minh City has run into problems with developers saying  they can only afford to charge less if they are given more preferential loans.

Building low-cost homes of less than 70 square meters and costing less than VND15 million (US$713) a square meter has been the focus of the government's plan to meet social needs as well as revive the stagnant property market.

But information tabled at a conference held in the city on July 2, focusing on projects for rent, showed that work has begun on just three buildings in outlying districts one by the CT Group, another by the Le Thanh Company and the third one by a state-funded project. This lags far behind demand, the conference heard.

The city's Construction Department has received around 750 applications for renting low-cost apartments, but only 233 are available, according to a study done by the Ho Chi Minh City Institute for Development Studies which organized the conference.

It also estimated that some 22,500 low-income people, including government and office workers, will need housing support by 2015.

Nguyen Ngoc Thach, director of the HCMC Housing Development Fund, said few developers are taking part in social housing for rent as they are afraid they would get stuck in them.

Thach said a project with 200 apartments of 50 square meters each, for example, would cost around VND100 billion ($4.72 million), meaning a monthly interest payment of VND10 billion in case the developers can borrow at 10 percent a year instead of the 12 percent or more that they are having to pay now.

To cover the interest, land use fees, management costs and make a 0.5 percent profit, the developer will have to charge more than VND6 million a month for an apartment, which is actually mid-range rent, he said.

Most potential customers look for rentals that are one-third that, according to a survey by the Institute for Development Studies.

CT Group's Bee Home project, which was supposed to have been completed a year ago, is being advertised for between VND1.7 and 3 million a month, and Le Thanh's Twin Towers for between VND2 and 2.9 million.

"The interest rates and the loan term limit (of 20 years) will surely guarantee losses for anyone investing in low-cost housing for rent," Thach said.

Le Chi Hieu, chairman of the Thu Duc Housing Development JSC, said the city's low-cost housing program "is in turmoil."

Hieu said even if the loan term was extended and the amount the developer has to pay banks every month reduced, they would still have to pay a big amount.

"Businesses would not be keen on investing a big sum only to collect small change," he said.

Companies said the government should subsidize bank interest, and that a single percentage point cut from the rate would lower the rent by 7 percent.

Nguyen Van Duc, deputy director of Dat Lanh, said the interest rate would be their major obstacle until it is reduced to between 3 and 5 percent a year.

Du Phuoc Tan of the research institute said Vietnam can follow French model, in which each city has to save 20 percent of its housing budget for low-cost apartments.

Tan said social housing in France receives enough government support to charge customers $5 euros a square meter a month, meaning less than VND7 million a month for a 50-square-meter apartment. He said this is happening in a country were the cost of living is  50 to 70 percent higher than in Vietnam, according to online comparison sites.

In wrong hands?

Tan's study found that at the state-funded project Dong Hung 2 in District 12, where the contract requires the original customers to stay for at least three years, half of the 112 apartments have changed hands once this time was up.

"The original customers complained about long commutes to the downtown area and a lack of roads inside and around the building," he said, adding that they have rented out the apartments for between VND4.5 and 5 million and could pocket some change after paying the developer VND3.7 million.

Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association, said the fact that the apartments were given to others proves that the social housing program has been a failure.

Chau said it is necessary to check if the project has really benefited the people in need, and whether a right location was chosen.

In a program effective June 1, the government announced the injection of VND30 trillion ($1.43 billion) into the banking system to offer soft loans at 6 percent rate to buyers and developers of low-cost homes, focusing more on the buyers.

But the program has not won much support from banks that fear an increase in bad debts from lending to low-income buyers, including government workers and military personnel.

Vietnamese lawmakers last month amended tax laws to sharply cut the corporate tax for developers of low-cost housing from 25 to 10 percent.


The Vietnamese government's call for a focus on low-cost housing to boost sales and clear inventories could have backfired, with several new projects marked as low-cost to win support.

A Thoi Bao Kinh Te Saigon report says developers of eight projects in the city have filed applications to adjust almost 7,800 apartments into low-cost ones to benefit from the 6 percent interest rate loans given under the VND30 trillion package effective June 1.

But only one project of The Tan Binh Investment and Construction JSC is under construction while others are still on paper.

Le Hoang Chau, chairman of Ho Chi Minh City Real Estate Association, said in this scenario, the stockpile might increase instead of reducing.

Figures from HCMC Construction Department show that its inventory has reduced by around 14 percent this year to around 12,400 units, while Hanoi authorities have said their inventory has increased by more than 50 percent to around 9,650.

Around 330 low-cost houses and apartments in the capital city are unsold, according to a VnEconomy report published July 2.

Experts say the real stockpiles are likely to be larger than reported figures.

Yet, many housing projects in Hanoi have started work in the past few weeks. These will bring into the market at least 4,000 apartments, all labeled low-cost ones, in 2015.

A source from HCMC-based Tan Binh Investment and Construction JSC, said it does not want to stay out of the "low-cost game", but it is not really sure that low-income customers can digest all the market can offer.

When the VND30 trillion package was launched, Deputy Construction Minister Nguyen Tran Nam had said that the supply of low-priced housing is way lower than demand.

Only in the medium- and high-priced segments is there an oversupply situation, he said.

Some 1.7 million urban residents in Vietnam have less than an average of 5 square meters of housing per person, while two million workers lack housing, he said.

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