VND30 trillion-credit package has been implemented since June 1, 2013 for the purpose of creating favourable conditions for low-income people to own houses, stimulating the housing demands and rescuing the real estate market. However, whether the preferential credit package targets the right customers is still controversial.
Concerns about interest rates
The State Bank of Vietnam (SBV) has issued Circular 11/2013/TT- NHNN to give guidelines for social housing loans under Resolution 02/NQ- CP. The newly issued circular has attracted great attention of the people and the real estate firms. As regulated in the circular, the VND30 trillion-credit package with the preferential interest rates of 6 percent will be implemented through 5 major commercial banks including Agribank, BIDV, Vietcombank, VietinBank and MHB from June 1.
According to many real estate experts, the VND30 trillion credit package cannot make a breakthrough on the property market, but it will gradually “warm up” the housing market. The interest rate at 6 percent in terms of 10 years for buyers and 5 years for businesses is considered reasonable. Besides, what the government agencies are striving to expand the target groups who could access to the loans is seen as a good sign.
However, there are still many concerns surrounding the credit package, because the credit package at the interest rate of 6 percent in terms of three years could be a interest rate trap for borrowers. The economist Bui Kien Thanh questions the Circular that the minimum loan term lasts in 10 years but the interest rate is just fixed at 6 percent at the very first 3 years. This raises another concern that how the interest rate will be changed next years.
According to Mr Thanh’s analysis, “The interest rate which is fixed at 6 percent based on the current inflation rate of 6 percent is not reasonable, and the formula the SBV is using makes many people worried about how the borrowers could resist if the inflation rate will increase by 10 percent in next three years. The rate of housing loans in terms of 10 to 20 years which is determined by inflation rate may put the borrowers and commercial banks at risks.”
This concern does not come from only Mr Thanh but anyone who intends to make housing loans. The interest rate will be the key factor of the lending decisions because most of the target borrowers have low-income. The main concern is whether the credit package targets the right borrowers and whether the interest rate will be fixed as prescribed or boosted up after that.
To address this concern, Mr Nguyen Tien Manh, Director of Credit Department of the SBV confirmed that it would not show interest trap. According to Mr Manh, the Circular No.11 of the SBV stipulates very clearly to the people and the market that the interest rate will not exceed 6 percent within next 10 years. “Even if the interest rate goes down, the SBV will announce the average interest rate of commercial banks loans and take half of it at the beginning of the year and promise to keep the interest rate not exceed 6 percent per year.”
Negative may arise
Along with the concern about the interest rates after the first 3 years of application, other concerns are that after VND30 trillion credit package for real estate market has been implemented, many customers and businesses who are in need of the loans are still struggling to find approaches to these funds.
Many real estate firms are still reluctant to the conditions of approving loans because it could take them several years for approval. Besides, under the provisions of the Circular No.11, the bank has rights to decide its customers. This raises concerns that during the processes of approving loans, the bank will prefer its “backyard” projects over other projects.
The regulation also illustrate that in total of VND30 trillion credit package, the business loans only account for 30 percent (VND9,000 billion), which is just of very small amount compared to the actual needs of the business today. This package is too small to support the businesses so the businesses cannot easily access to such capital. Under the tough situation businesses are experiencing financial difficulties, the negative issues arising during the capital access is very likely to occur.
On the side of the borrowers, many concern that how many percent of 70 percent of the VND30 trillion credit package for personal loans will be allocated to commercial housing loans and social housing loans. If only based on the income statement, the social housing buyers cannot compete with the commercial buyers. Therefore, it is important to regulate how much capital is allocated to low-income people unless the social housing borrowers will find difficult to access the capital.
Tuan Luong
Đăng ký: VietNam News