Difficulties remain

The difficulties Vietnam’s real estate market faced in 2008 have continued prolonging in the first few months of this year. The biggest difficulty is the shortage of capital. Many investors suffered heavy losses last year and could go bust. In addition, banks that provided heavy loans over the past two years have not been repaid yet. Meanwhile, many foreign-invested projects worth billions of dollars are unlikely to be implemented this year as many partners are confronted with financial difficulties.

In early 2009, there have been some positive signs for the real estate market to pick up as some banks have begun to provide mortgages again. However, economic expert Bui Kien Thanh elaborates that if the banks stop providing loans, many real estate enterprises will face bankruptcy, seriously impacting the banks. Recently, real estate prices have fallen but still remain high. This is attributed to the fact that a lot of properties in Vietnam have changed hands many times over, pushing up the prices each time.

Looking forward to the government’s demand stimulus package

In February, the Ministry of Construction submitted a stimulus package to the government to save the real estate market, with a focus on housing for low-income earners. A real estate expert Dang Hung Vo says that the package is a good idea but some issues need to be addressed to ensure it is effective. Firstly, it is necessary to know if the package is effective and how long it will last. Secondly, it is necessary to reform the management of the housing problem.

According to Mr Vo, to ensure long-term sustainable development, the stimulus package should be considered as an effort to attract more investment from companies that employ a large number of workers and from the workers themselves.

Focusing on building houses for low-income earners

A recent market study showed that there is an increasing demand for accommodation amongst low-income earners. Economists say that to kick start the domestic real estate market, it is essential to focus on building houses for this section of society.

According to the Ministry of Construction, each low-income earner has a living space of only 7-8 sq.m on average, while they need at least 10 sq.m per capita. At present there is an imbalance between the supply and demand for accommodation from low-income earners. This is attributed to investors who are keen on building up-market apartment buildings to earn high profits.

Dang Hung Vo says that it is necessary to launch promotional campaigns and offer preferential treatment for projects to build houses for low-income earners by reducing the tax on land use and providing low-interest loans. However, tough inspections need to be stepped up to ensure that low-income earners can access these preferential loans and tax relief is an effective way of giving a helping hand to low-income earners, he adds.

However, as he argues, there remain some flows in the land-use tax that cannot prevent speculation. Therefore, it is important to impose higher taxes on potential investors involved in projects to build houses for the poor.

Regarding the purchasing power of low-income earners, Bui Kien Thanh says that in the 1930s the US offered preferential loans for low-income earners to buy houses over a long time. Also, in Singapore, businesses raised funds to help their employees buy their own houses, while many Swedish people set up their own cooperatives to build houses. Following the Swedish model, the Vietnamese Cooperative Alliance has recently decided to build houses for its own members.