VND30 trillion credit package can rescue real estate market?

Apr 1st at 22:50

01-04-2013 22:50:05+07:00

Doubts have been raised whether if the VND30 trillion package can save the sinking real estate market. VND30 trillion is believed to be just a “grain of salt in the ocean.”

The State Bank of Vietnam is considering designing a VND30 trillion credit package in an effort to rescue the real estate market. Three months ago, the government released Resolution No. 02, showing its determination to rescue the market. Experts believe that the fall of the real estate market would lead to the collapse of many other markets.

However, it’s not sure if the bailout would help warm up the market which has been frozen over the last few years. VND30 trillion does not have much significance for real estate developers who are thirsty for capital. It also does not have much significance for people who want to borrow money to buy houses, because they will have to satisfy the strict requirements set by the banks, to be eligible for loans.

Deputy Chair of the National Assembly’s Economics Committee Mai Xuan Hung said he knows a National Assembly’s Deputy who has fallen into “dilemma” with their house purchase. The deputy was allowed to buy a half-finished apartment at a preferential price of hundreds of millions of dong. He had to borrow money from banks to buy the apartment. And he does not know what to do now. He doesn’t have money to decorate the apartment, while he cannot sell the apartment.

“I mean that even when someone needs accommodations, he would be very hesitant to borrow money to buy houses,” he said.

The suggested VND30 trillion package offered by the State Bank is technically believed to be a “reasonable offer.” The interest rate of 6 percent per annum proves to be reasonable to the current state’s ability and borrowers’ capability, who are mostly office workers, state agency employees, low income earners.

However, analysts agree with Hung that the credit package may not reach to those people who really have the demand for accommodations.

The 6 percent per annum interest rate is expected to be applied for the first three years of the loans, while the interest rates of the next years would be changeable in accordance with the market interest rates. This means that borrowers would have to bear higher interest rates in the remaining years, which may go beyond their financial capability.

The analysts also said they are not sure about the demand for the apartments priced at below VND15 million per square meter. The low priced apartments are mostly located on the belt roads, far from the central area of the city.

At present, the investors, who develop commercial apartment projects, can enjoy preferences if they shift to develop the projects for low income earners. This would help the developers’ products more salable, and help people more easily access accommodations.

However, as Vu Dinh Anh, a well-known economist, pointed out, there would be two big risks for banks.

First, the developers don’t use the loans to develop houses for low income earners as they commit, but will use the money for other purposes.

Second, the developers respect their promise and build houses for low income earners, but they cannot sell the products. This would lead to the increase of the bad debts in the real estate sector.