Mortgage Market in Vietnam

Vietnam is a developing economy with a small mortgage market as the loans for homebuyers are not very common.

 

Vietnam is a developing economy with a small mortgage market as the loans for homebuyers are not very common.

 

There is absence of private ownership of land in this country. Both the Constitution and the Land Law states that the land is the property of the people, and is subject to the administration by the states. The Government therefore grants the rights to use land to its people by allocation or by lease. Foreigners are also entitled to lease a land for no longer than 50 years.

Mortgage Provisions In Vietnam

Mortgages in Vietnam are mainly provided by foreign commercial banks although VietComBank, a state-owned bank also offers mortgages. As there is lack of land ownership, the property rights (for foreigners-the leasing rights) will be pledged to the bank. The maximum loan-to-value ratio commonly and presently applied is 50%. Sometimes a ratio of 60% may be applied on the conditions that there are extremely good and visible supporting financial conditions of the applicant. This ratio is also relatively low when compared to ratios of 80 – 90% in developed countries. This is due to the fact that they are subjected to a higher degree of risk when lending to borrowers in Vietnam, as there are inadequate forms of security to protect their interests in the event the borrower defaults.

The applicant’s debt to income ratio must not exceed to 75%. It means that his debts, which will include monthly bills, leases, outstanding credit, can only amount to 75% of his monthly income or he/she will not be applicable to take up the loan. There is also an interest rate ceiling of 10.2% p.a. for protecting the borrowers.

ADB In The Mortgage Market Of Vietnam: –

The Asian Development Bank (ADB) fact-finding mission visited Vietnam during 4-8 March 2002.The Mission discussed with officials from the State Bank of Viet Nam (SBV), the Ministry of Construction (MOC), the Ministry of Planning and Investment (MPI), and the Ministry of Finance (MOF).

Keeping in view the country’s poor condition the Asian Development Bank has stepped forward for assessing the housing finance sector at the national level including the physical, institutional and financial ascepts.

The data given by the ADB showed that over the years, the total housing area had considerably increased by 739 million square meters throughout Viet Nam.Upgraded and newly built housing by owners accounted for 75% of total housing, while housing generated by construction companies accounted for 25%.

Per capita living space in the urban area increased from 8.2 m 2 to 10.4 m 2 in the recent years. Presently almost 40 percent of households in urban areas occupy a usable housing area of less than 36 m 2 . Only 25 percent of urban households live in permanent housing types and 19% live in temporary, unstable structures made of different materials, including waste. With the expected rapid growth of the population and increased urbanization and rural-urban migration, the imbalance in demand and supply of the housing stock in urban areas will increase. Making land and finance for housing available to the urban population, especially the poor, at affordable rates, is a challenge for the Government.

Mortgage Rates In Vietnam

The interest rates for FRMs are usually higher than that for ARMs. The mortgage rate for Vietnam is the highest at 9.5% (India has the second highest rate of 8.5%) while Japan has a very low mortgage rate of 2.375%. The short-term rate in Vietnam is 4.80%. In contrast, the short-term rate for Japan is only 0.011%. The mortgage rate in Hong Kong is currently about 2.5%, which is lower than the prime-lending rate. Interestingly, the mortgage yield spread in Japan, South Korea and Singapore are higher compared to Hong Kong. Mortgage yield spread in Vietnam, India and Malaysia are relatively high at more than 3%.

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