Interview: Le Viet Hai
What impact will efforts to develop the affordable housing market have in the medium term?
LE VIET HAI: At the start of 2013 the government launched a VND30trn ($1.3bn) loan programme for affordable housing projects, helping low- to middle-income earners finance affordable property purchases. The purpose of this strategy is to mitigate the apparent oversupply in the luxury segment and the shortage of products in the affordable segment for people in the low- to middle-income brackets. Bank loans are the main source of funding for real estate investments, so when there is a lack of demand, the risk of investor insolvency rises. This can potentially lead to the collapse of the banking system.
The aforementioned government programme encourages investors to develop affordable housing products by making more space in the market for them. This in turn will have a positive effect on the market by easing the oversupply of luxury real estate projects and the shortage of affordable ones, resulting in more balanced supply and demand.
Purchasers of affordable housing tend to have real demands and needs. These buyers usually live in the houses they buy and manage their expenses more carefully to retain property ownership. Luxury segment demands, however, are often superficial and affected by speculation – which can be very dangerous to the real estate market, as well as the credit market. Therefore, another benefit of the loan programme is that low- to medium-income earners, which make up an overwhelming percentage of the population, can now participate in the real estate market to a far greater extent.
Lastly, the risk of insolvency for investors if demand is lower than expected will be better mitigated and managed as the pool of potential buyers now includes lower- and middle-class buyers. As a result, we will be better protected from any domino effect risk within the banking system. The timing and frequency of government-backed loan initiatives are also important considerations. Such programmes should only be used when the property market is suffering from severe imbalances or in dire need of a boost. To overuse loan programmes would be an inefficient usage of public funds and could result in increased public debt and unsustainable growth.
With improved access to credit for the low- and middle-income segments, is real estate growth expected to drive the credit market?
HAI: This has already been happening for the past two years. According to the central bank’s report on credit growth for the first seven months of 2016, outstanding loan balances on real estate purchases accounted for 13% of total credit growth – of which 39% was for housing purchases. This shows that the low- and middle-income segments have long been in need of greater access to credit in Vietnam. In developed countries such as the US, we have seen how improved access to credit for middle-income buyers in the real estate market has driven the credit market. There is little doubt that the credit market in Vietnam will respond in the same way, with its high credit demand and large percentage of low- and middle-income earners supporting this assumption.
With greater access to credit among these groups, it will be necessary for the authorities to pay close attention to how credit is awarded to ensure that it is done in a sustainable manner and in a way that is both appropriate and in sync with movements in the market. We do not want improvements to be superficial. In keeping a close watch on the credit market, the state should also play a central role in effectively regulating it without interfering too much. However, if the stability of the market is under severe threat or if it is displaying a number of distressing signals, the government must then intervene and promptly notify key market participants to regain stability.
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