Bailout funds await viable projects

Apr 7th at 13:32

07-04-2014 13:32:14+07:00

As well as the Vietnamese government’s VND30 trillion ($1.4 billion) bailout package, the real estate market has received a VND50 trillion ($2.38 billion) commercial credit package. Banks are now collaborating with developers to try and support buyers through a range of preferential lending schemes. Phan Thanh Mai, general director of the Vietnam Construction Bank, tells VIR that the money is sufficient but there is a shortage of viable projects.

Now that the interest rate from bankers has been reduced, how does this impact the real estate market?

I believe that this is a good sign for the economy in general and the real estate market in particular. When the interest rate declines and commercial banks have surplus funds, loan interest rates will be reduced. As a result, the economy will upsurge and so will the real estate market. However, the most important thing is that when the economy is stable, enterprises will have a chance to access capital flow with lower expenses and get more feasible projects.

Although the interest rate has declined, people continue to keep their savings in banks because it’s safer than other channels such as gold, stocks, and foreign currency. However, when real estate market shows signs of recovery these savings are likely to be funnelled into real estate because of its high profit and attraction to investors.

In the revised draft of the Housing Law, the Ministry of Construction (MoC) has proposed to set up a housing loan bank. Do you think this is feasible within the wider context of Vietnam’s banking sector?

Five years ago, a survey team from the State Bank, the Ministry of Finance, the Government Office and the Vietnam Real Estate Association made a studied tour of this model in Germany, the Czech Republic and China.

This model has been applied successfully in China. It creates a savings culture and responsible borrowing when buying a house. Specifically, if a buyer wants to buy a VND2 billion ($95,000) house, then the buyer will have to save VND1 billion in two to three years. The deposit interest rate of this sum is not high, and it’s stable. When the buyer has saved enough, he will be loaned the remainder at a negligible fixed interest rate over a specified period of time. In fact, the MoC has proposed to put a pilot project into operation in Hanoi and Ho Chi Minh City. And, yes, I think that this model is feasible in Vietnam.

It will be a key issue for the future. At the moment there are many credit packages with preferential interest rates, especially the VND30 trillion one. However, many people think that this bailout package is not used effectively. What’s your opinion?

I think we shouldn’t evaluate the bailout package based solely on its initial dispersal. We need to look at its social effects. This bailout package is not intended for the market generally, but as a support for low-income earners. Meanwhile, the success of social housing and low-income housing projects can not be calculated in the short term over a period of months, but must be considered over many years. So I think this credit package has made some laudable initial achievements. Firstly, it has contributed to the reduction of housing prices, and will help more people own their own homes. Secondly, it helps developers restructure their products to be more suitable to the market’s real demands.

What about the movement of the real estate market in general recently?

There have been many positive signs lately. For example, from the fourth quarter of 2013, the liquidity of some affordable housing has increased while the inventory has reduced, especially in Hanoi and Ho Chi Minh City. This is proven by developers’ sales records since late 2013.

However, difficulties still remain. Real estate, construction, manufacturing, and building materials developers are still lacking investment capital. But the Vietnam Construction Bank is cooperating with other banks to implement the VND50 trillion credit package, and so the market is warming up.

What will be the effect of the VND50 trillion package?

The most important thing about this package is the bank guarantee for developers, which should restore market confidence and create a trickle-down effect through the other banks, allowing them to disperse cash more readily. Similarly with the VND30 trillion package for social housing, the VND50 trillion credit package will create spillover effects for the construction industry as a whole.

However, what’s different about the VND50 trillion package is that it’s applied by commercial banks, not the state budget, so there’s not as much commitment to dispersing the money. To be safe, the banks will first fund social housing, affordable housing, and small-scale construction projects. After the market stabilises it will be directed towards other larger projects. Also, this credit package has been ear-marked for infrastructure projects, so projects containing land plots will also have the opportunity to be developed.

We believe that this credit package will help developers solve their capital shortage problems, as well as creating jobs and increasing liquidity. Unfinished real estate projects will have the opportunity to be relaunched and new projects will be initiated. Therefore it should create a domino-effect that will revitalise the frozen real estate market. I believe the property market will show signs of growth in the third and fourth quarter of 2014.

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