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VietNamNews

Rental market needs investment

Update: December, 09/2014 - 08:42

Deputy Minister of Construction Nguyen Tran Nam spoke with Tin tuc (News) newspaper about financial policies for rental housing development projects.

Why hasn't rental housing development taken off already in Viet Nam?

Increasing the amount of rental housing in the market was a major part of the national housing development strategy approved in 2009 by the Prime Minister. A recently adopted Housing Law also encouraged the development of rental housing.

Enterprises, however, haven't shown much interest in developing this kind of projects because it requires large upfront investments and breaking even, let alone making a profit, takes a long time. The Government's financial support and long-term loan policies are required to jumpstart the field.

At the moment, most enterprises only borrow short-term loans from banks for investment; this makes the implementation of rental housing projects very difficult.

Investors love to build housing intended for sale rather than rent because the capital returns are much faster. Secondly, citizens largely buy and own homes rather than rent. Workers and students also prefer to rent from private owners rather than large rental housing schemes because private owners have fewer and less strict leasing requirement.

What measures have been taken to increase investment in rental housing development?

Enterprises currently depend on loans from banks. We should have policies that help establish new institutions that offer alternative sources of credits. The construction ministry already proposed the idea but still hasn't secured the support of the banking sector, which dislikes the idea of gaining another competitor in financial field.

However, I think we must establish such a fund, it's essential. The rental housing market is stunted and lacking development incentives. Individuals with VND50 million or 100 million (US$2,400-4,800) and looking to invest aren't able to invest in the real estate market, only to put it away in a savings bank.

With VND50 million, a person might be able to buy one per cent of a VND5 billion ($238,000) housing project as a way to buy into the market without needing major initial investment capital. Through that first real estate investment, an investor can grow their investment portfolios and look for more financial partners to begin new development projects.

In addition, investment funds that have professional management and market analysis make higher and less risky profits than individual investors.

Credit funds have been established following the Law on Credit Institutions. There was also a decree to establish credit funds but the decree's regulations are unclear or unfeasible.

The Ministry of Construction has the responsibility to promulgate instructions for the implementation of the law, and therefore that includes policies which support or encourage enterprises to build rental housing. Such a policy, for example, might offer loans with low interest rates, longer borrowing periods and lower taxes to investor interested in building social housing for rent.

Which groups will be initially prioritised in the ministry's rental housing development plan and what do you think about its prospects?

The ministry will first focus on developing social housing projects for workers, students and low-income people.

The Viet Nam Building Glass and Ceramics Corporation (Vigalcera) has designed a successful model for building rental housing. They devote 20 per cent of their housing fund to build rental houses of suitable quality and prices. Their rental prices are generally below VND2 million ($100) monthly, within the reach of most Vietnamese incomes. The model should be encouraged and shared. — VNS

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