|Economic expert Nguyen Tri Hieu.
The domestic real estate market is likely to warm up this year, with the amended Housing Law allowing foreigners to buy property. Viet Nam News talked with economic expert Nguyen Tri Hieu about this issue as well as the most promising segments in the property market.
The amended Housing Law that permits foreigners to buy property is expected to create a new wave of transactions in the real estate market. How do you react to this?
The amended Law on Housing, which takes effect on July 1, 2015, has been applauded by the financial community as it is a new dawn for foreigners who wish to own property in Viet Nam. I believe the change in policy will have a positive impact on the domestic property market.
Yet, I do not expect that the amended law will create a breakthrough in the property market this year. The outlook that a wave of foreigners will flock to the country to purchase property will not be seen, at least in 2015. That is because the amended law just focuses on the foreigners who already live in Viet Nam and understand its legal system. There is no article regulating conditions for foreigners who neither live nor work in the country to buy houses.
One obstacle that discourages foreigners from buying property in Viet Nam is that there is no insurance company protecting the right of property ownership for buyers. In the United States, for instance, if I buy a property, an insurance company will act on my behalf and investigate the history of the land. Once I buy the property, the company will ensure that I have the rights to own that asset, and if there is a dispute over the ownership of the property, I will get compensation.
The amended Housing Law is a good preliminary move to attract foreigners to invest in real estate. Yet, in order to turn the law into an impetus for the property market, there should be detailed regulations
regulating the transactions done by the foreigners living abroad.
How do you assess the effectiveness of the VND30-trillion favourable loan package that aims to unfreeze the real estate market?
Recently, the State Bank of Viet Nam took more action to boost the disbursement of the loan package. For instance, earlier this month, SBV
added ten commercial joint stock banks to the list of the banks that can disburse the package, apart from five State-run banks. The ten banks are Nam A bank, Saigon-Hanoi Bank (SHB), Eximbank and Bao Viet,as well as Sai Gon, PVCombank, Tienphongbank and Phuong Dong, besides VPBank and Dong A Bank.
In addition, the conditions applied on the beneficiaries of the VND30-trillion package have been eased. Also, the loan term has been extended to 15 years from 10 years, and the interest rate has been reduced to five per cent from six per cent per year. Hopefully, the package will be disbursed at a faster pace in 2015.
One difficulty for the disbursement process is that the amount for low-income earners is limited. In addition, the income of a large number of Vietnamese people remains fairly low, so the term of the loan should be further extended to 20, even 30 years. The interest rate of five per cent is acceptable, but if it is reduced to four per cent, it will attract more low-income people to get mortgage.
In my opinion, the government should create long-term capital in order to grant people longer-term loans.
The difficulty of Viet Nam's economy is a long-term fund market that has been established, but is still in the initial phase and the resources are limited. Yet, it is always easier said than done. Regarding the current circumstances, if Vietnamese banks grant loans of more than 15 years, they will be taking a great risk because bank deposits are short-term ones of one to 12 months.
One possible solution to improve the country's capital market is that the government stands up to organise it. The government can issue long-term bonds, probably of 10 years or 20 years. G-bonds are a resource for the capital market. This stems from the fact that the government has great prestige, so G-bonds will attract foreign investors. Another source of long-term funds may come from insurance and financial companies.
As soon as Viet Nam has a good capital market, domestic banks will be willing to provide long-term loans to people who want to buy property.
In general, I think the package's efficiency falls short of people's expectations, though its disbursement speed might be greater than in 2014.
Circular 36 restricts loans to share investors, but expands the same for property investors. The circular will come into effect on February. What is your view of the policy?
Circular 36 should be implemented immediately. Once property loans are extended, the whole economy will benefit, including speculators.
However, I do not think the circular will encourage property speculation, because banks have learnt great lessons from the legacy of the rampant and uncontrolled lending over the years.
That the capital adequacy ratio has reduced to 150 per cent from 250 per cent, according to Circular 36, is great news for property and stock investors. However, it does not mean that the State Bank of Viet Nam has opened the valve to let banks grant loans in large numbers. I do not think the reduction of the capital adequacy ratio will create property bubbles.
Which segment of the property market will be the most promising in 2015?
The segment for middle and low-income earners will be the busiest one this year. High-end property, meanwhile, will continue to remain frozen.
The urban property market will warm up, whereas in sub-urban regions that lack infrastructure, the real estate market will remain stagnant. — VNS