Social housing loan for the poor, low-income population in Vietnam

(VBSP News) According to Law on housing and Decree No. 100/2015/ND-CP dated October 20, 2015 of the Government on development and management of social houses, VBSP was assigned to provide preferential credit to buy, lease-purchase social houses; new house construction, renovation or repair. Some details of Decree No. 100/2015/ND-CP are as follow:

Social housing projects in Da Nang province

VBSP lends to 05 target groups, including : (1) People who have contributed to the revolution, family of people who have contributed to the revolution under the legislation on policies for people who have contributed to the revolution; (2) Low-income people, the poor, near-poor households in urban areas; (3) Employees at enterprises operating inside and outside the industrial zone; (4) Officers, military non-commissioned officers, technical non-commissioned officers, professional military officials, employees at security and defense agencies; (5) Government staff under the legislation.

Borrowers must meet following conditions: (1) Borrowers must make savings deposit; (2) Having sufficient equity capital as regulated; (3) Having sufficient documents to prove eligibility of the borrower; (4) Having income and capacity to pay debt; (5) Having written loan application; (6) Loan to buy or lease-purchase a social house: have a social house buying or lease - purchasing contract. Loan for new housing construction, renovation or repair: having the certificate of land use rights, house ownership and other assets attached to the land, having design, cost estimations; (7) To conduct loan security in accordance with the provisions of law;

Maximum loan amount for buying or lease-purchasing a social house is 80% of the social house buying or lease - purchasing contract. Loan for new housing construction, renovation or repair: loan amount up to 70% of cost estimations or plans for cost calculations.

Lending interest rate is decided by the Prime Minister for each period. In 2018, it is 4.8%/year. Interest rates are always preferential at only about 50% of market interest rates. Overdue interest rate is equal to 130% of the lending interest rate. Deposit interest rate is equal to lending interest rate;

The minimum loan tenor is 15 years and maximum is 25 years. Loan tenor shorter than minimum tenor can be arranged with the lending VBSP;

Loan procedures: (1) Borrower sends loan document to his/her Savings and Credit group. (2) Savings and Credit group organizes a meeting and make a list of borrowers to send to commune-level People's Committees. (3) Commune People's Committees shall certify and send to VBSP. If borrowing demand is larger than the assigned capital plan, rating shall be applied to consider borrowing priority. (4) VBSP make loan appraisal. If the loan is approved, the borrower and the investor shall sign a tripartite contract and contracts as prescribed by regulations. (5) Borrower opens an account to deposit savings and make deposits immediately from the month of signing credit contract. (6) VBSP disburses to borrowers by transferring money to investors, materials suppliers or disburses in cash;

The borrower does not have to repay principal within the grace period of 12 months from the date of receiving the first loan installment, at the end of the grace period, VBSP deducts all balance of the deposit account of the borrower for debt repayment. If the borrower faces difficulties due to objective reasons and cannot repay debts when a debt installment is due, he/she shall be considered for adjusting the debt repayment time limit for not more than 12 months. At debt maturity, if the borrower cannot paid debts due to objective reasons, he/she will be considered for loan extension for no more than 24 months. The transfer of overdue debt, debt at risk treatment is subjected to prevailing regulations of VBSP.       

The social housing loan program in accordance with Decree No. 100/2015/ND-CP has capital to deploy lending from April, 2008.

The Social housing loan program at VBSP is not a package of loans with specific amounts and terms but it is a long-term policy of the Government. With 50% funding from the state budget, VBSP will mobilize the remaining 50% to provide loans. For sustainable development of the program, sufficient funding sources for long term implementation in practical context, provisions on savings deposit should be reviewed accordingly.

VBSP has researched and proposed a new product of social housing loan in accordance with Decree No. 100/2015/ND-CP. The product will require savings in a certain period of time before being considered for lending. This product will be introduced in parallel with the current loan product in order to meet diverse needs of borrowers. The current loan product is to complete the target capital plan already assigned by the government and respond immediately to urgent needs for housing whereas the new product will meet the needs of those who have demand for housing in the future, after a period of deposit and at the same time VBSP will mobilize more funds to lend.

The current lending interest rate does not exceed 50% of market interest rate, this interest rate is favorable to borrowers but in the long run the state budget will have to subsidy a large amount.

Current loan amount as compared to total investment is high, very favorable for borrowers, but it will reduce borrowers’ activeness and affect the sustainability of the program.

The minimum deposit time currently is 12 months, leading to dependence of borrowers; the contribution of savings deposit to lending capital is low. It may necessary to lenghthen the time of deposit savings

Mechanisms and policies such as land, tax, etc. should be appropriate to strengthen responsibility as well as to encourage participation in the development of social housing to increase the supply of social houses with suitable product structure, to ensure essential technical infrastructure, social infrastructure, transport, health, education and culture of social housing projects.

The demand for social housing loans is high, but funding source is small, balancing capital to meet demand for loans is a challenge. According to calculations, the source of loans for the social housing program from now to 2020 is only VND 2,326 billion, just meeting about 13% of demand for loans in the period (demand is approximately VND 18,000 billion).

Some of other difficulties such as household registration, land certificates, etc. also need to be addressed.