(Biz Hub) — The Government's VND30 trillion (US$1.44 billion) bank loan package targeting low income property customers is expected to warm up the domestic real estate market.

Since the preferential loans package with a 6 per cent yearly interest rate was launched earlier this month there have been many controversial views on the venture. Viet Nam News reporter To Hang talks with Dr Nguyen Tri Hieu, Independent member of Ocean Bank's Board of Director Office, about the loan package's possible impact.

What possible effects could the loan package have on the property market?

Dr Nguyen Tri Hieu believes the VND30 trillion package will make good impact on property market only when it is disbursed within this year and next year. — VNS Photo To Hang

The loan package of VND 30 trillion is not big enough to solve all the problems that society faces, including large numbers of people with a shortage of accommodation, bad debts, huge property stock.

However, I believe the package will help thaw the real estate market. There is demand and there is also supply for apartments. Commercial banks meanwhile, need a measure to solve bad debts.

If the preferential loan is well implemented, it will have a positive impact on the property market and the economy as well.

As far as I know, thousands of loan application files have been sent to commercial banks over the past two weeks. The remaining problem is how to properly implement the policy.

What is the cause of the sluggish property market?

There's an abundance of properties, but most of these are more suited to middle and high class buyers. The supply of property for low income earners meanwhile, is far short of demand.

Five to ten years ago people predicted a brighter future for the Vietnamese economy when sharp increases in income would lure overseas Vietnamese and foreigners to do business and live in the country. Many investors poured money into high-end buildings and villas. Yet, the reality turned out to be as not good as the forecast, leading to a surplus stock of middle and high class real estate.

Over the past two years, tens of thousands of businesses closed and went bankrupt. Moreover, operating enterprises also met countless difficulties as exports slowed down – this is another cause for the sluggish market.

There's demand for apartments but the number of people who can afford them remains small.

Thirty per cent of the VND30 trillion loan is for property investors and 70 per cent is for purchasers. Do you think the ratio is reasonable?

From the statistics I've seen, Ha Noi needs 100,000 apartments for low income people.

Seventy per cent of the package for customers equals VND21 trillion ($1 billion). Assuming the price of an apartment is VND800 million ($38,000) then the VND21 trillion loan will help sell nearly 30,000 flats, meeting a third of demand.

So the VND21 trillion-package is small in terms of people's demand.

I think the Government should offer the whole package to property customers and provide another loan package for investors. Anyway, the policy was delivered and we have to obey.

Will the preferential loans stimulate purchasing power?

Sure. The five banks involved in the loan disbursement have received demands from tens of thousands of customers. This will not only effect the economy but have a positive impact on people's psychology.

The banks should publicise all their requirements so people will know if they are qualified to take the loan or not.

To use the loan effectively, it must be implemented quickly. From now until the end of this year, at least one third of the package must be disbursed. The rest should be completed by the end of next year.

If the package is quickly disbursed it will help solve accommodation demand for a large number of people, warming up the apartment market segment as a result and helping the whole market recover faster, while assisting banks in partly solving bad debts. There are different statistics on bad debts but as far as I know, 60 per cent of bad debts relate to property.

Owning an apartment remains a dream for low income people. — Photo vneconomy

Some people say the package is branded ‘for low income earners' but it does not really target this group of customers. Do you agree with this comment?

The comment is accurate. I think only average and middle income earners are able to take the loan. Take a VND600 million ($28,800) apartment as an example. Banks will grant customers loans of 80 per cent of the flat they want to buy, equal to VND500million ($24,000).

If the loan is paid in 10 years, the customers must pay VND5.5 million ($264) a month. This means the household must have an income of VND11 million because they have to pay for other expenses such as food, clothes, etc.

If the bank extends the loan to 20 or 30 years, the average income of the household must be VND7 million and VND6million per month respectively.

The average income of Vietnamese people meanwhile, stands at VND3.84 million ($182) per month. Based on my calculation, low income earners have no chance of being able to take the loans.

If the package is to target low income earners, the loan must be paid back over 30 years and the interest rate must be decreased further to 3-4 per cent.

What advice would you give people who want to access preferential bank loans?

Everyone wants to own a house. People work hard and save so they have enough money to buy a house that they can live in and pass on to their offspring.

Apart from administrative procedures, those who want to take a bank loan must have savings worth at least 20 per cent of the asset and their monthly income must be at least double their monthly bank payment. Otherwise they should avoid taking a loan. — VNS