An ongoing affordable housing project in Tan Binh District, Ho Chi Minh City
The government's VND30 trillion (US$1.43 billion) loan package for low-cost housing has seen slow disbursement due to limited supply, meaning it could fail to revive the property market and address the housing shortage.
Loans worth VND813 billion ($38.5 million) were pledged to three firms and 331 individuals as of late last month under the program launched in June, but only VND113.8 billion has been disbursed.
Of this, VND69.4 billion was lent to 305 individuals and the rest to two firms, according to the State Bank of Vietnam.
Admitting that disbursement has been too slow, Nguyen Trong Ninh, deputy chief of the Department of Housing and Property Market Management, said this was because there are few low-cost housing projects that meet the package's requirements.
The loans are meant for developers of low-cost housing and buyers including low-income people, government workers, and military personnel, who can borrow at 6 percent interest to buy social housing and commercial houses of up to 70 sq.m. that cost no more than VND15 million per square meter.
Banks offer loans to other clients at 9-10 percent interest.
Vietnam has 167 social housing projects, of which 34 apartment blocks with 19,000 units are available and the rest are under construction, according to the Ministry of Construction.
The demand for social housing in Hanoi is estimated at 30,000 units.
Explaining the reason for the low supply, Ninh said the government has supported construction firms but capped their profits at 10 percent.
"The state's support is not large, while the profit of 10 percent is much lower than what they could make from commercial housing. So firms do not invest in such projects."
The ministry is now urging firms to accelerate construction of social housing projects, but most of it has just started, meaning few have hit the market so far.
Meanwhile, the switch from commercial to social housing, which would enable developers to borrow from the package, is too slow.
Developers said they face many difficulties in doing this.
A director of Ho Chi Minh City-based property developer An Phu JSC said he has gone from pillar to post "up north, down south" and asked to turn some of his company's apartments into smaller ones, "but my application is still pending."
His company, which is trying to downsize its 120-150-square-meter apartments into units of 60-70-square-meter, said it has been made to run from one office to another.
Ninh said it takes a lot of time for relevant agencies to assess technologies and project designs before allowing developers to scale down their apartments and turn their commercial housing projects into social housing ones.
Provincial people's committees have the right to allow developers to turn their commercial housing projects into social housing ones. In the case of large projects of 500 units upwards, they have to get approval from the Ministry of Construction.
Developers have so far asked to turn 50 commercial housing projects with 34,000 units, mainly in Hanoi and HCMC, into social housing projects.
Another reason for the slow disbursement from the package is the lack of clear rules about mortgage, qualifying income, and repayment.
Le Hoang Chau, chairman of the HCMC Real Estate Association, called the disbursement "disappointing" since demand was high.
The procedures for lending are not transparent or consistent, he said. "Every place is doing in its own way."
Economist Tran Du Lich said it is very difficult for borrowers because of the complex and vague regulations. "If the regulations are not amended, the program may fail to achieve its target."
Cut prices at top end
There are some 28,000 unsold apartments, mainly at the high end, according to the Ministry of Construction.
Developers of several high-end housing projects in HCMC are making large price cuts to spur demand as the prolonged property slump continues.
Nova Real Estate Investment Corp (Novaland) said September 9 that it was cutting the prices of apartments in its unfinished Sunrise City project in District 7 to VND27 million ($1,278) per square meter.
This compares with VND39-50 million for earlier blocks which hit the market in mid-2012.
Speaking about the price cuts, Novaland Director Phan Thanh Huy said liquidity is one of the company's biggest concerns now.
Three days before that developer Phat Dat Corp. reduced prices at its EverRich 3 project in the same district.
Land plots for 75 villas and detached houses now cost VND40 million ($1,890) per square meter on average, down from VND80-100 million earlier.
Phat Dat general director Nguyen Van Dat hopes the company can sell all its remaining units this year.
According to a report on the last quarter by property consultancy Savills, average housing prices in HCMC are down 21 percent since early 2009.
The high-end segment suffers from excessive supply while there is great demand for housing among low-income earners, it said.
Pham Sy Liem, chairman of the Vietnam Construction Federation, said: "Most local people can only afford apartments costing less than VND1 billion, but the products in the market are mainly priced at VND2-3 billion."
Explaining the paradox, he said developers have bought land in prime locations at very high prices, and so are building luxury apartments.
At VND14-16 million per square meter, units measuring 40-100 square meters in projects like Dai Thanh, Kim Van-Kim Lu and VP 5 Linh Dam in Hanoi's Thanh Tri and Hoang Mai districts are attractive enough to set off a scramble to buy even in this situation.
Unable to directly buy from developers, many people are willing to buy from agents by paying up to VND200 million extra.
Liem said the strong demand for low- and mid-priced apartments may be a driving force for a property market recovery in the coming time, adding the segments have great potential.
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