Two major solutions for frozen real estate market

Converting commercial housing projects into social ones and allowing foreigners to buy houses are among the solutions to defuse the current sluggish real estate market, according to the Government’s draft resolution.

Under the draft resolution, the Government will adopt policies to encourage social housing development so that low-income groups could afford to buy or rent.

The Government will review all housing projects to decide which ones will be continued or terminated.

To defuse the frozen real estate market, the Government will also consider removing barriers against foreigners who want to buy houses in Viet Nam.

Accordingly, the Government will amend the Housing Law towards expanding range of buyers. The revised bill will be submitted to the National Assembly for consideration.

The draft document also says that the Government will instruct and support real estate businesses to restructure their operations.

Other possible solutions include the establishment of funds on housing and real estate investment, of channels for medium- and long-term investment mobilization for the market.

Official statistics show that the volume of unsold apartments is huge, with 14,490 apartments worth VND 24,500 billion in Ho Chi Minh City. Meanwhile Ha Noi has inventory of nearly 5,800 apartments and 3,483 semi-detached houses.

Housing prices are extremely higher than the average income levels of the majority of people. Speculation and high interest rates have also made the problems worse.

Soft loans for low-income people to buy houses

According to Nguyen Hoang Hai, general Secretary of VAFI, the first solution is to support low-and middle-income people receiving preferential loans at commercial banks, such as with the interest rate mechanism of the Development Bank for project investment incentives. In particular, those who buy a house worth less than VND2 billion/ unit can enjoy a preferential interest rate of 7 percent/ year for the first three years, the government subsidises interest rates from 5 – 3 percent/year. The state will spend about VND8 trillion subsidising interest rate for 3 years (2013, 2014, and 2015); this amount of money will attract investment capital of around VND120 trillion, which corresponds to about 120,000 apartments. According to VAFI, the interest subsidy mechanism for commercial banks to participate in the stimulus programme will be similar to the mechanism in 2008 when the government allocated $1 billion for subsidising interest rates for the entire business system for a period of 1 year. However, to successfully carry out the stimulus programme, the registration of a preferential interest rate can only have one-year expiration.

Analysis of VAFI shows that in the situation of the tight state budget with multiple priorities, the state budget won’t lose this VND8 trillion, because the subsidised capital is the initial advanced capital. When the stimulus programme is done, it will release inventory and release the productive capacity of the real estate industry, building materials, the financial services industry and the state will collect more taxes from this stimulus programme, of course, the tax increase will be much larger than the original with a new capital spending.

The second solution, according to VAFI, real estate prices have fallen sharply (30 percent – 60 percent), this is a great opportunity for local authorities, and especially large urban towns, to create for themselves one cheap and quality resettlement fund for the period 2013 -2020. With the current real estate market and the need to build large housing resettlement funds for urban development planning in the near future, major localities have to buy a total of about 25,000 apartments corresponding to the amount of VND 25,000 billion.

The question is where to get capital. Hai analysed that with the perspective of financial investors, if localities are creative, they can exploit more complementary sources and can afford to invest in 10,000 apartments; or mobilise the available financial resources and immediately from the capital of SCIC and corporate restructuring fund (managed by SCIC).

According to VAFI, by using funds from the SCIC, they can buy 15,000 apartments; this is a good investment while contributing to the output resolution for the real estate market and construction materials industries. To offset capital for enterprise fund arrangement, the government should direct the ministries and SCIC to sell capital for enterprises having existing strategic partners. Selling shares in SABECO for foreign strategic partners can draw enough capital to buy 15,000 apartments (average VND1 billion/ unit). However, the planned purchase of SCIC should coordinate with local authorities to create a fund for future resettlement.

Fighting against goldenisation and dollarisation while pushing real estate market demand

The third solution, according to VAFI, is that the State Bank should lower interest rates for foreign currency deposits to 1 percent/ year, then 0 percent/ year. In two years, the policy to control interest rate on foreign currency deposits has succeeded beyond expectations (from the limits of 3 percent/ year, reducing to 2 percent/ year), contributing greatly to stabilise the exchange rate, increase the country’s foreign exchange reserves and support the reduction of interest rates in VND. From this success, they should continue to lower interest rates in exchange for pulling US $ interest rates to the possible lowest level.

Hai said that the fourth solution is to apply value added tax to gold bars and gold jewellery at 10 percent of the purchase value. However, to ensure the rights of citizens to own gold, it should not apply the collection of VAT and excise tax on the sale of gold bars and gold jewellery. Meanwhile, the central bank should commit to buy gold bars and gold jewellery of the people (through licensed agents) at any time at international purchase price (discounted cost of reasons).

“If Vietnam applies the third and fourth solutions, it will completely finish goldenisation and dollarisation taking place in the past decades. At the same time, SBV can easily lower interest rates below 10 percent/ year, short-term lending rate to about 8 percent/ year, so VND mobilising interest rates will stay at 5 percent/ year before June 30th 2013. These solutions not only help to quickly defrost the real estate market, but also support bad debt processing and quick economic recovery,” said Hai.

The 5th solution is that it’s necessary to form the “fire team” from the central to local levels to quickly research the real estate market. Currently, the Party, the government and the National Assembly, a few ministries, agencies and localities are determined to defrost the real estate market in 2013. However, specific policy and rapid implementation require close cooperation from ministries and local departments, with localities, especially large urban areas such as Hanoi and HCM City, to understand the situation of each real estate project, determining the overall priority of projects that need to be settled immediately, with design changes, area of apartment change, and land use right certificates. At any given time, Chair of the County, District, and People committees must also be aware of the progress of each project and the Department of District should closely follow each project to address administrative procedures.

“This 5th solution is completely under the control of the ministries, agencies and localities. Expeditiously resolving the solution would be one extremely important step to revive the real estate market,” Hai said. - Source: VGP