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Little by little

Released at: 11:38, 21/03/2014

Little by little

If adopted in Vietnam the housing finance model applied in Germany could help Vietnamese people to realise their dream of owning their own home. Hoang Thu reports.

by Hoang Thu

    Housing finance models are quite a new concept in Vietnam but have long been found in countries like Germany, the Czech Republic, Hungary, Romania and China. In Germany, Home Savings Banks have assisted some 13 million people to improve their housing over the last 60 years and now involve 3 - 4 million people each year. “The belief of the German people in Home Savings Banks is even greater than in the central bank,” Mr Michael Dorner, Head of International Projects at Bausparkasse Schwabsch Hall AG, a Home Savings Bank in Germany, told a conference on the German housing finance model and experiences for Vietnam held in December. In China, with its huge population and vast area, people have participated in the housing finance models of different banks rather than a select few.

In countries applying a housing finance model, parents often open a savings account for their children very early on in their life and deposit a certain amount each month. When the children become adults they already have a healthy sum that may cover a third or even a half of the price of a house, and by taking out a mortgage are able to buy. Such models are voluntarily and encourage the raising of private and idle capital, and are a safe and flexible channel for mobilising capital for housing. Deposits are not used for providing loans, so the capital cannot be lost or misappropriated.

The principle behind the German model’s operation follows two stages. In the first, people deposit funds with a Home Savings Bank until they reach 50 per cent of the total value of the house they wish to buy. In the second, savers are permitted to borrow the remaining half at low interest rates to buy a house.

According to Deputy Minister of Construction Nguyen Tran Nam, in the long-lasting difficult economic context such models promise to create a specific channel for mobilising capital and investment for developing Vietnam’s housing sector. According to MoC figures, the demand for housing in Vietnam, especially among low-income earners, is very high. Some 7 million people need to rent or buy social housing, with a total area of around 150 million sq m with capital investment of VND300,000 - 400,000 billion ($14.3 billion - $19 billion).

Many experts, though, are concerned that if applied in Vietnam the model would struggle to meet expectations. The majority of Vietnamese low-income earners find it hard enough to meet their monthly expenses and can’t set aside money for savings. Inflation is also a concern, because the real value of their money may fall after 20 years if inflation remains even moderate. “The real estate market and housing prices change in ways that are not predictable,” said Mr Pham Si Liem, Deputy President of the Vietnam Federation of Civil Engineering Associations. Fluctuations in interest rates are a barrier to implement similar savings models in Vietnam. In Germany, savers are provided with long-term loans for housing purchases by banks at stable interest rates of about 3 per cent. In Vietnam, the interest rate would certainly be higher. The government’s support package is offering rates of 6 per cent.

Regarding these concerns, German experts confirmed that the interest rate applied to participants in the model are fixed and for terms of 10 to 15 years. Deputy Minister Nam said that careful research on any barriers affecting the housing finance model in Vietnam is needed to determine how it will be adopted. But low-income earners can indeed participate, as many already try to access commercial bank loans to purchase housing. With the 6 per cent interest rate in the government’s support package, the demand for preferential loans is high. This model aims to prevent reliance on government support and encourages people to save, especially low-income earners,” Mr Nam said.

There are apartments available at VND200-300 million ($9,524- $14,285) in Hanoi, Binh Duong, and Da Nang, because they are exempt from land fees and taxes. People need only save VND100-150 million ($4,761-$7,142) and then borrow the remainder from a Home Savings Banks to purchase an apartment. It will take about ten years to repay the loan, at about VND10 - 15 million ($476 - $714) each year. Mr Nam expects the housing finance model to be immediately incorporated into the draft revised Law on Housing and other related legislation for submission to the National Assembly for consideration this year. If adopted, the model is expected to be formally implemented and applied on a national scale in early 2017.

Mr Nguyen Manh Ha, Director of the Housing and Real Estate Market Management Department under MoC, said that the model could prove effective in Asia. “Each country will adopt flexible mechanisms to apply the model, depending on their own savings habits,” he said. “I hope the model will have a good effect in Vietnam and contribute to improving the quality of housing for people.”

Meanwhile, Mr Christian Oestreich, Head of the Department of International Markets at Bausparkasse Schwabsch Hall AG, said they will work with a number of banks in Vietnam to explore the market and Vietnamese savings habits before making specific plans. “I believe that the model’s application in Vietnam will occur faster than in other countries in Asia,” he said. “Hopefully we will witness its success by 2016.”

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