Mortgaging future social houses: a new hope for the urban poor
Tam Nguyen, Ho Chi Minh City Community Manager
Ho Chi Minh City, 18 July 2014
Starting on 16 June 2014, low-income earners in Ho Chi Minh City as well as other parts of Vietnam are officially allowed to mortgage their future social houses to buy the same house, according to the Joint Circular 01/2014. The newly issued Circular is regarded as a determined step to address the urban housing puzzle by the State Bank of Vietnam, the Ministry of Construction, the Ministry of Justice, and the Ministry of Natural Resources and Environments.
As of 2013, Ho Chi Minh City houses approximately 8 million people, 81,709 of whom are considered poor. These urban poor are living in 67,000 sub-standard houses built with makeshift materials that fall down and burn easily, and in 18,000 houses along stagnant canals.
Social houses, a government effort to tackle this issue, have been a disappointing promise for low-income families because of the conflict between low purchase criteria and high loan conditions. Depicting this irony, the Vietnam Journalists Association cites the typical story of Mr. H. T., a low-income earner in Ho Chi Minh City, and his struggle to buy a social house from the First Home developer. To meet the purchase criteria, Mr. T. had to submit to the developer documents confirming his low-income status with a monthly salary of no more than VND 4.5 million (USD$212). Ironically, for the bank to lend him the purchase money, Mr. T. was required to have a confirmed salary of at least VND 12 million (USD $566), which he managed to get only through a personal contact.
Similarly, many urban families hoping to own a social house have to make up two separate profiles, one proving that they are poor enough to be eligible for one, while another proving that they are rich enough to pay for it. Even though the government has issued an attention-grabbing credit package of VND 30,000 billion (USD $1.4 billion) with a low interest rate to assist the poor, banks still have to make lending decisions based on borrowers' ability to pay. Thus, the high loan conditions persist, and the credit package has not been able to show results.
Five collateral conditions
However, with this new mortgage initiative, once the purchase agreement is signed, the poor can use their future social houses as legal collateral, which allows banks to relax their income requirements. The new law is applicable for both commercial and social houses that fulfill the following five conditions:
- The house to be mortgaged must have an approved technical design
- The foundation construction must be completed
- The sale and purchase contract is signed with the housing developer
- The house is not undergoing any lawsuit, nor is it awaiting confiscation
- Houses are also eligible for mortgage if they belong to projects granted certificates or land handover decisions by state agencies
Practically, while Joint Circular 01 is not to be regarded as the magic bullet for all housing problems, especially with the complexity of bureaucratic procedures in Vietnam, it is expected to utilize more efficiently the VND 30,000 billion credit package, and help more low-income families to settle in their own homes. The task left to do now is to derive thorough yet simple mortgage procedures so that future loans benefit the right people.