Channeling Capital into Affordable and Social Housing

Unfortunately, in the recent Government conference on solutions to address difficulties in credit growth for business and production, and to promote economic growth, there has not been much discussion on this issue.

JOURNALIST: - Where is the bottleneck causing the capital flow to be obstructed?

Dr. LÊ XUÂN NGHĨA: - It is true that the entire system of credit institutions currently has around VND 700,000 billion that can be pumped into the economy. However, credit growth remains slow, partly due to the overall economic challenges coupled with the limited capital absorption capacity of businesses and weak capital demand from the public. Additionally, the ability of businesses to meet credit conditions is also limited. This indicates that credit institutions need to closely adhere to each sector and industry to be more flexible in lending conditions.

Businesses, on the other hand, must actively research and explore market outlets, as well as future medium and long-term investment environments, to avoid borrowing for investment without a market. For example, the European market requires exported goods to the EU to have a greenhouse gas emission report. Starting in 2024, Vietnam has five export items to the EU that require this report, and from 2026, all exports to the EU must report, with taxes imposed for exceeding the prescribed emissions. This is a significant technical barrier for all Vietnamese businesses, as many of our export production materials are imported from countries that do not have this reporting requirement, making it impossible to export to the EU. Until now, many businesses producing export goods are hesitant, uncertain if they can "survive" at that time, hence not investing or borrowing capital. Therefore, banks are also concerned about lending, as it may be challenging to recover funds if the exported goods cannot be sold.

At the conference, the Prime Minister did not directly emphasize this point, but he suggested that businesses need to research markets and find stable outlets to build confidence with banks.

Additionally, global demand is currently low due to the increasing trend of consumer savings caused by high inflation, expensive fuel and electricity, leading to reduced spending. Domestic demand is also weak, with statistics showing that the total retail sales of goods this year only increased by 10%, and if inflation is deducted, it only increased by 7%. In contrast, in previous years, the growth rate was 17%, 18%, and 19%. If businesses face difficulties in production and business, it naturally affects the output of banks as well.

- Some argue that banks are overly cautious and excessively focus on ensuring safety?

- Currently, interest rates are continuously decreasing, and lending conditions are more relaxed. Previously, banks lent around 65-70% of the collateral value, but now some banks are willing to lend up to 80% of the collateral value. Therefore, in my opinion, many complaints come from the real estate sector, while manufacturing, investment, and internationally oriented businesses do not complain because of the lack of outlets, leading to expanded production and reduced borrowing. The fact that the Prime Minister consistently organizes credit promotion conferences while capital is still bottlenecked indicates that difficulties in the economy have not yet found a way out.

- So what is the solution to the credit problem?

- The Prime Minister has directed a series of vigorous and coordinated solutions, including many new measures to overcome difficulties in credit growth. Banks need to closely follow specific sectors and industries, be more flexible in lending conditions, and evaluate the prospects of cash flow more closely. Although credit standards are not lowered, flexibility is essential, and there should be an emphasis on using market tools, reducing and eventually eliminating administrative tools.

For sensitive markets like real estate, it is essential to understand that this involves high-end real estate. In contrast, for social housing and affordable homes, the Prime Minister has directed the need to promote and relax lending conditions. Among the three driving forces for economic development, crucial impetus comes from investment. While public investment and FDI are quite good, private domestic investment has decreased significantly. Therefore, to revive private domestic investment, there must be a strategy in place. If private domestic investment does not revive, it will be challenging to achieve the economic growth target set by the National Assembly. Hence, the implied direction from the Prime Minister is to increase credit output by investing in the affordable housing and social housing segments. This segment has practical and significant demand, and people's payment needs are substantial. By channeling investment into this sector, there can be economic growth, meeting the housing needs of the people, and increasing credit simultaneously.

In summary, an area that can generate significant credit and GDP growth and has substantial demand is affordable housing and social housing. Unfortunately, this issue was not discussed in the recent credit relief conference. Projects related to affordable housing and social housing have been slow, and this is not the fault of banks or the people but likely a responsibility of the government. If this situation persists, it will lead to the consequence of a real estate market recovery mainly in the high-end segment, creating a cycle of real estate bubbles. Ultimately, a majority of Vietnamese people, including civil servants, armed forces, and workers, will still be left without the opportunity to realize their dream of owning a home.

- Thank you very much.

Tri Nhân (interviewer)