German housing finance model adopted in Vietnam
The Ministry of Construction recently put into place a housing finance model from Germany to assist the nation to successfully achieve its national housing strategy.
The model used in Germany was used nearly 100 years ago and later spread to many countries.
In Germany, parents open a saving account for their children and put a certain sum of money into the accounts each month. After 15 to 20 years, when their children had grown, they would have a sum of money – possibly equal to one-third to one-half of the value of a house, and with a loan from a bank the next generation could afford to purchase a house.
Deputy Minister Nguyen Tran Nam says that the model operated efficiently in many countries, such as China, the Republic of Korea and Germany, which helped create a long-term and stable capital source for housing development, while encouraging savings.
However, careful research about any barriers effecting this housing finance model in Vietnam is needed to determine how it would be adopted.
For instance, fluctuations in interest rates are a barrier to using a similar savings model in Vietnam.
In Germany, savers will be provided with long-term loans for house purchases by banks at the stable interest rate of about 3%.
In Vietnam, the interest rate will certainly be higher, experts say, pointing out that the Government's support package is currently available at the rate of 6%.
Also, only 1.56% of the VND30 trillion (US$1.42 billion) package has been distributed.
Pham Sy Liem, Deputy President of the Vietnam Federation of Civil Engineering Associations, says that inflation is also a concern, because the real value of the savings could be lower after 20 years due to inflation.
Also, the real estate market continued to change in ways that are not predictable, he added.
Liem also points out that the savings model has not helped to deal with housing demands of low income earners, because some of them still struggle to make a living and do not have money to set aside for a monthly savings account.
However, Nam says this model aims to prevent the reliance of people on the Government's support and encourage them to save, especially low-income earners.