100706 Vietnam Affordable Housing A Way Forward October 2015 A Way Forward i Vietnam Affordable Housing A Way Forward October 2015 Acknowledgements This report was produced with advisory from the World Bank for the Government of Vietnam (GoV), in collaboration with the Ministry of Construction (MoC), in particular, the Bureau of Housing and Real Estate Markets and the Ministry’s Inter-Departmental Working Group on Affordable Housing. Financial support was provided from the Government of Switzerland’s Federal Department of Economic Affairs, Education and Research via the Multi-Donor Trust Fund for Sustainable Urban Development and the Australian Department of Foreign Affairs and Trade via the Australia - East Asia and Pacific Region Infrastructure for Growth Trust Fund. The recommendations put forth in this report originated from a consultative planning process, supported by the Ministry of Construction, and in close engagement with the State Bank of Vietnam, Ministry of Finance, Ministry of Planning and Investment, and Ministry of Natural Resources and Environment, among others. Technical findings and policy recommendations also benefited from the input from a team of international and national housing experts. We are grateful to all the government counterparts and stakeholders who participated in this process. In particular, we would like to express our special gratitude to the following individuals whose facilitation and guidance has been essential to the development of the Roadmap: Mr. Nguyễn Trần Nam, Vice Minister, Ministry of Construction Mr. Nguyễn Trọng Ninh, Deputy Director General, Bureau of Housing and Real Estate Market, Ministry of Construction Mr. Vương Duy Dũng, Vice Director, Housing Development Division, Bureau of Housing and Real Estate Market, Ministry of Construction While the comments and inputs to this report have come from many contributors, all shortcomings of the work rest solely with the authors. A Way Forward v vi Vietnam Affordable Housing Contributors Government of Vietnam Ministry of Construction Ministry of Finance State Bank of Vietnam Ministry of Planning and Investment Ministry of Natural Resources and Environment The World Bank Team Leads and Consultants Taimur Samad, Task Team Leader, Senior Urban Economist, GSURR Hoa Thi Hoang, Co-Task Team Leader, Senior Urban Specialist, GSURR Meskerem Brhane, Former Task Team Leader, Program Leader, AFCE2 Josephine McVitty, Housing Specialist, GSURR Huong Mai Nguyen, Urban Governance Analyst, GSURR Dao Harrison, Senior Housing Policy Specialist Matthias Nohn, Senior Incremental Housing Policy Specialist Olivier Hassler, Senior Housing Finance Specialist Geoffrey Payne, Senior Urban Land Policy Specialist Duong Huynh, Housing Policy Analyst National Contributors Dang Hung Vo, Senior Land and Housing Policy Advisor Nguyen Thi Thanh Tam, Sociologist La Hai Anh, Statistician Bui Van Khiem, Research Assistant Tran Thi Cam Nhung, Research Assistant A Way Forward vii viii Vietnam Affordable Housing Glossary of Abbreviations ACCA Asian Coalition for Community Action ADB Asian Development Bank AFD French Agency for Development BOLUC Building Ownership and Land Use Right Certificate BOT Build-Operate-Transfer BT Build-Transfer CAGR Compound Annual Growth Rate CAM Constant Amortization Method CDF Cities Development Fund CDIA City Development Initiative for Asia CG Central Government CIDCO City and Industrial Development Corporation CPF Central Provident Fund CRA Commonwealth Rental Assistance CRU Community Residential Units CSP Commercial Sector Produced CSC Central Steering Committee on Housing and Real Estate Market Policy DFI Development Finance Institutions DoC Department of Construction DTI Debt to Income EMI Equated Monthly Installments FDI Foreign Direct Investment FMR Fair Market Rent GHB Government Housing Bank GoV Government of Vietnam GSO General Statistics Office HBEE Home-Based Economic Enterprises HCA Homes and Communities Agency HOA Home-Owners’ Association HCMC Ho Chi Minh City HDB Housing and Development Board HOREA Ho Chi Minh Real Estate Association IMF International Monetary Fund IZ Inclusionary Zoning LG Local Government LGAF Land Governance Assessment Framework LHDF Local Housing Development Fund LIHTC Low Income Housing Tax Credit LDIF Local Development Investment Fund LPLR Land Pooling and Land Readjustment A Way Forward ix LTV Loan-to-Value LURC Land Use Rights Certificate LVT Land Value Taxation MFI Microfinance Institution MoC Ministry of Construction MoET Ministry of Education and Training MoF Ministry of Finance MoHA Ministry of Home Affairs MoJ Ministry of Justice MoLISA Ministry of Labor, Invalids, and Social Affairs MoNRE Ministry of Natural Resources and Environment MoT Ministry of Transport MPI Ministry of Planning and Investment NASHO National Association of Social Housing Organizations NGO Non-Governmental Organization NHA National Housing Agency NPLs Non-Performing Loans NSC National Steering Committee ODA Overseas Development Assistance PC People’s Committee PCF People Credit Funds PPC Provincial People’s Committee PPP Public-PrivatePartnership RDA/RDAs Redevelopment Authority/ Redevelopment Areas RFP Request for Proposal RIR Residual Income Ratio SALGA South Africa Local Government Authority SBV State Bank of Vietnam SHRA Social Housing Regulatory Authority SOE State-Owned Enterprise SPPI Savills Property Price Index TDR Transferable Development Rights ULIHs Urban Low income Households URA Urban Renewal Authorities USAID United States Agency for International Development VAMC Vietnam Asset Management Company VBSP Vietnam Bank of Social Policy VDB Vietnam Development Bank VHLSS Vietnam Household Living Standards Survey VUUP Vietnam Urban Upgrading Project WEDS Women’s Economic Development Society WU Women’s Union x Vietnam Affordable Housing Executive Summary A. Summary Affordable housing will be instrumental to helping Vietnam achieve its goals for increasing productivity and inclusive urban growth. Since Doi Moi, the country has experienced impressive economic growth, averaged at 7.4 percent per annum from 1990 to 2008, lowering to an average of 6 percent per annum from 2007 to 2013. Strong economic growth has supported a substantial reduction in poverty, from 58 percent in 1993 to 17 percent in 20121. Yet, the country has remained largely rural, with more than half of its population working in the agricultural sector, which only contributed 17 percent of GDP in 20142. In some countries, urbanization has been used as a tool to accelerate economic growth and poverty reduction. As Vietnam aims to maintain a high growth rate, supporting urbanization, where cities contribute a growing share of jobs and GDP, will be an important measure. This structural shift will drive population growth and new demand for housing in cities, for which quality and affordable housing options in well-serviced and connected settlements will be needed. There is an opportunity now for government to consolidate and refocus efforts in the housing sector. Vietnam has gone through several phases of housing policy. Prior to 1988, the formal housing sector was managed through central planning, which shifted to a reliance on market systems following the Doi Moi reforms. This has led to tremendous growth in the housing sector, particularly in the high- end segment for both the supply and demand sides. Yet, a market-based approach largely has not delivered housing solutions accessible to the poor or near-poor. Growth spurred by FDI investment and speculation led to significant home price increases in the high-end segment that eventually resulted in a real estate bubble from 2009-2012. The 30 trillion stimulus package has helped to reorient developers and lenders toward the affordable middle income housing sector with real home ownership needs, yet at a high fiscal cost to the government. After these years of crisis, there is an opportunity now to enter a new phase of housing policy, which is focused on better management of market vulnerabilities, more efficient public spending and affordability for the lowest income. The 2015 Housing Law sets the framework for reform in the housing sector. Areas of particular importance in the Law is support toward self-built housing, the active participation of the private sector, addressing the shortage of affordable rental housing as well as high demand for housing from low income groups, especially workers in industrial zones of large cities. This report, which includes a comprehensive assessment and roadmap for affordable housing in Vietnam, recommends the following key messages moving forward: 1. Increase Investment: Consolidate and increase housing sector funding in a sustainable way to meet national housing objectives, targeting the lowest two income quintiles and high growth cities, where the need for housing is most urgent. 1 World Bank. Taking Stock: An Update on Vietnam’s Recent Economic Developments. December 2014. 2 McCaig, B. Pavcnik, P. Moving Out of Agriculture: Structural Change in Vietnam. 2013. A Way Forward xi 2. Prepare Three Flagship Initiatives under an umbrella National Affordable Housing Program: Develop a new generation of interventions in the housing sector and cultivate capable delivery actors, focused on efficient use of public funds and solutions catered to the bottom 40 percent of the population. These include: Initiative One. Housing Finance Assistance: Develop specialized housing finance products for formal and informal low-income households and shift to mortgage-linked subsidies to enhance affordability for the middle-class in a more cost-effective way. Initiative Two. Affordable Rental Housing: Increase private sector provision of affordable rental housing through a capital subsidy program targeting industrial workers and low income urban residents. Initiative Three. Starter Homes: Deliver core housing units that are incrementally expandable for the lowest income households in new urban, peri-urban and rural areas. 3. Undertake Two Structural Reforms: To effectively manage the housing sector, undertake two priority reforms, which ensure good coordination, cost recovery and long-term sustainability of policy initiatives. Reform One. Institutional Strengthening: Work towards strengthening an over-arching housing and real estate sector coordinating body, to prepare policy and programs, channel subsidies and to support local governments into becoming effective executing agents. Reform Two. Land Tax Reform: Make progressive adjustments in the land taxation framework to support local governments with additional local revenues for project funding and to allow better management of land markets. 4. Create an Enabling Environment for Affordable Housing: Invest in a suite of activities into the medium-term for strengthening housing sector governance and development of the affordable housing sector. This includes putting in place the building blocks of a functioning housing market, including real estate information systems, a common targeting framework, and strengthening M&E, as well as design of supporting regulatory or administrative reforms and new initiatives in priority action areas. Moving forward, design of the market-oriented measures described above will require intensive and careful consultation and engagement with all housing sector actors, particularly the private sector. Private sector will need to play an active role in the early preparation to ensure their participation and commitment that carries through to implementation of policy measures on the financing and supply side. B. Sector Assessment Despite economic growth, Vietnam still has a substantial deficit of quality housing. Today, almost 20 percent (approximately 4.8 million households) of Vietnam’s 24.2 million households live in poor conditions. Population growth and urbanization have exceeded the government’s ability to ensure its citizens have access to safe and affordable housing. The share of the urban population is expected to reach 50 percent by 2040 as Vietnam continues to promote industrialization as a means xii Vietnam Affordable Housing to facilitate economic growth and poverty reduction. This will mean that an estimated 374,000 additional units are needed in cities annually, with the number of urban households projected to increase to 10.1 million in 2020 (from 8.3 million in 2015), as a result of urban population growth and a decline in the average household size at 1.1 percent per annum3. New demand for housing will be concentrated in a few major cities and industrial zones. The two largest metropolitan areas, Hanoi and Ho Chi Minh City (HCMC) will drive urban growth into the medium-term. Spatial analysis shows that more than 50 percent of urban land in the country lies within the boundaries of these two urban areas, as well as 75 percent of new urban spatial growth. The Red River Delta Region (including Hanoi) and the South East Region (including HCMC) account for around two-thirds of annual housing demand or an estimated 244,000 out of the 374,000 units. Current supply has been dominated by self-built solutions. Approximately 75 to 80 percent of units are produced by small-scale developers, micro-builders and households themselves. However, low and middle income households still face many difficulties in obtaining the necessary resources for a formal and decent self-built unit. First, access to formal land for self-built housing is often unaffordable due to the costly and lengthy procedures to obtain formal tenure. Secondly, access to finance is a constraint to many low income and informally-employed households, due largely to the low level of financial inclusion. Technical capacity to ensure quality construction of housing is also a challenge. Finally, certain regulatory and administrative requirements push households into informality, such as minimum plot sizes (e.g. 50 m2 or more in some cities) and prohibitively costly infrastructure requirements. The government has started to increase flexibility for self-builders, taking into account sector needs. For example, Decree No. 64/2012/ND-CP allows for exemptions on construction permits for small projects, which reflects the government’s willingness to support this sector. The developer-built commercial sector has experienced strong growth, but has been vulnerable to cyclical downturns. Following the Doi Moi Reform era, state-owned developers dominated housing production until 1998. Since then, a growing number of private developers have entered and become active in residential housing. Yet, Vietnam’s real estate sector has also experienced three major downturns in this period, revealing the weaknesses of the housing system. A volatile market during 2009-2012 resulted in rising inflation, high interest rates and slowed growth, which deflated the real estate bubble. Home prices decreased substantially, particularly in the middle and high-end market, leading to a stagnation of housing production, scarcity of liquidity, consolidation of actors and a sizable inventory of high-end housing stock needing completion or uptake. Prices for affordable homes (priced at below VND16 million/m2) also decreased, but remained relatively stable during this period due to continued consumer demand. Unmet market demand, supported by the 30 trillion stimulus package, has led to stronger participation by developers in the affordable housing segment, in spite of lower margins. As the market stabilizes and investment returns, this interest could be leveraged to further increase private sector participation in lower market segments. Demand for rental housing is high in urban areas and increasing. According to the 2009 Census, rental housing makes up around 15 percent of Vietnam’s housing stock, or 3.3 million units nationwide. Rental housing demand is concentrated in urban areas (up to 26 percent of households in HCMC), among migrants (64 percent of migrants in HCMC and Hanoi live in rental housing), youths and low 3 Authors’ calculations based on Vietnam’s Household Living Standards Survey (VHLSS), 2009 Census and 2013 Inter-Censal Survey. A Way Forward xiii income households. The need for temporary housing or rental solutions can be expected to increase as Vietnam becomes more urbanized, the population of students and migrant workers rise and the average age of marriage continues to increase, with many young people choosing to settle later in life. Existing affordable rental housing in Vietnam is mainly informal, small-scale and substandard. The low level of formality faced by many tenants has a significant impact on livelihood opportunities and magnifies vulnerability to poverty, particularly for migrants. Despite rising demand, the supply of formal affordable rental housing is limited, due to the low payment capacity of tenants, legal hurdles, and the difficulties for private sector to prepare financially viable projects, which prevents their participation and incentivizes landlords to remain informal. Industrial zone workers contribute to a large share of rental housing demand. In Quarter 3 of 2014, out of the 15.8 million people who are employed in urban areas, 3.05 million belong to the manufacturing sector, with 2.25 million people working in 295 industrial parks and 15 economic zones across the country4. Among industrial workers, roughly 40 percent are between the ages of 15 and 29 and approximately 78 percent, or 1.75 million people, rent their dwellings. It is estimated that formal supply is only sufficient to respond to 10 percent of this rental housing demand, indicating that most people end up renting informally, and there is substantial unmet need in industrial zones for adequate rental and starter home options. Despite the need, formal housing solutions are largely not affordable to the low income. Affordability analysis based on income groups indicates that only the top income quintile can afford developer- built commercial units. The 30 trillion stimulus package has extended affordability to middle income households, albeit at a high cost to government, by significantly lowering and fixing interest rates below prevailing market rates. However, as exhibited by Table 1, standard housing units are not affordable for lower-income groups, particularly those below the 40th percentile of household income, as well as informal income or tenure groups. Table 1: Affordability based on Income Quintiles of Urban Households (in thousands, VND) Market Conditions 30 Trillion Program Income Monthly Loan Loan Down-Payment Affordable Down-Payment Affordable Amount Quintile Income Amount Starter Home Starter Home Q5 29,805 1,155,013 30% 495,005 1,650,018 1,507,588 30% 646,109 2,153,697 Q4 14,272 414,811 20% 103,703 518,513 541,434 20% 135,359 676,793 Q3 10,313 226,838 20% 56,709 283,547 326,031 20% 81,508 407,539 Q2 7,322 106,315 0% 0 106,315 185,193 0% 0 185,193 Q1 3,982 35,835 0% 0 35,835 75,524 0% 0 75,524 Source: Authors’ calculations based on preliminary income estimates (urban Vietnam 2014) from the VHLSS 2012 short form and housing finance lending assumptions. Income data has been inflated by 13 percent CPI. Access to housing finance is a major barrier for increasing affordability. There are large underserved segments of the market that are unable to access housing finance. For example, 68 percent of the labor force have informal income and therefore do not qualify for mortgages. Neither do home- owners with informal tenure and the poor, who have low payment capacity. Innovations in housing finance and lending channels are required to respond to these market needs, which are supported 4 General Statistics Office. Report on Labour Force Survey. Quarter 3. 2014. xiv Vietnam Affordable Housing by long-term sources of funds. Furthermore, the real estate downturn in 2009-2012 exposed systemic weaknesses in the mortgage sector. Lender underwriting standards are widely varied and risk management practices are weak. There is also a need to improve the foreclosure system, develop early-indicator tracking tools for the sector and consider counter-cyclical prudential regulations to support sustained market stability. These will be important measures to guard against risks through market cycles, as growth and investor interest returns to real estate. Land supply is another key obstacle to affordable housing production. Annually, an estimated 11,500 hectares of urban land is needed for housing. Formal supply is failing to keep pace with demand, which is forcing up prices and reducing affordability. The existing land administration framework is complex and inefficient. Key challenges to the delivery of suitable serviced land include: (i) difficulty for governments to mobilize vacant or underdeveloped land in cities; (ii) controversy in the State’s land acquisitions and compensation practices; (iii) challenges enforcing and tracking the 20 percent land contribution requirement stipulated in Decree 188; (iv) the lack of land value capture tools to extract value from new development; and, (v) limited use of integrated land use planning and coordination between relevant ministries (i.e. MoC, MoNRE, MoT, MPI). Land tax rates in Vietnam are currently very low, which contributes to speculation and elevated land prices. Land tax only accounts for 2 to 3 percent of total government revenues, due to minimal tax rates and below-market valuations prescribed by People’s Committees in the Land Price Framework. This significantly limits revenues for providing services, infrastructure and funding for other public programs. Adjustments in the land taxation framework is expected to have a significant impact on increasing land supply and improving affordability, by reducing incentives for investors to hold vacant or underdeveloped land for speculation, thereby lowering land prices. Existing housing programs have had some positive outcomes, however, most are still ongoing and results are unclear. There are almost a dozen housing programs in implementation. They have largely been successful at leveraging private sector and reaching a large number of households, notably the 30 trillion program, the Mekong River Delta flood mitigation program and home improvement support to low income rural families. Yet, most programs are designed independently for different target groups, using distinct delivery channels that are not coordinated with other efforts in the sector, and without clear accounting mechanisms for public expenditure. Several of these programs have also struggled to receive the necessary funding for implementation, while others have been implemented at high economic cost to the government. Finally, there is a gap in housing policy focus for poor urban households. Programs could be made more efficient through consolidating delivery systems and focus on developing broad market segments, rather than delivering to independent target groups. Box 1 Examples of Vietnam’s Government Interventions in Affordable Housing 30 Trillion Stimulus Package: GoV launched the 30 trillion stimulus package in June 2013 to stimulate the real estate market, while addressing the over-supply of high-end inventories, and reorienting lenders and developers toward real demand from middle and low income consumers. While SBV manages consumer eligibility criteria, loan disbursement and performance on the demand side, MoC is responsible for approving and overseeing projects on the supply side. Although the program has been largely successful at stimulating affordable housing production and lending, aimed to reach an estimated 45,000 households, it struggled initially with slow disbursement and largely benefits the formally-employed middle class at high economic cost to the government. The implicit economic cost of the subsidy for mortgage loans and developer loans is 23.8 percent and 7.1 percent of total capital, respectively. A Way Forward xv Decree 188’s 20 percent land contribution requirement: Decree 188’s requirement of land contribution to social housing production and provision of complementary development incentives are among the GoV’s first efforts to resolve supply-side housing blockages for urban low income segments. Low enforcement and underdeveloped procedures to manage and effectively utilize land reserves at the local level has resulted in developers’ reluctance to abide by stringent guidelines and limited supply of land released for social housing through this initiative. This experience demonstrates the need to introduce new procedures by engaging local governments so that they can have input into policy design early and are prepared to implement. VUUP’s Housing Upgrade Component: Funding for housing microfinance under the Vietnam Urban Upgrading Program (VUUP) helped to expand and deepen MFI sector activities around micro-loans for housing improvement in urban areas. In conjunction with urban upgrading, USD 15 million was provided to MFIs and community networks to provide preferential credit for home improvement to low income households in HCMC, Hai Phong, Can Tho, and Nam Dinh. Lending in this program reached 90,000 households and demonstrated the interest of MFIs to deliver housing microfinance if the right government support is put in place. Low income Rural Housing Program: This program targets poor households in rural areas without existing homes. The Vietnam Bank of Social Policy (VBSP) provides low-cost credit for home improvement and incremental construction, as well as basic technical assistance for construction. The Women’s Union, Farmers Union, and Youth Union are among the community organizations that provide customer interface and operations, from origination and appraisal to disbursement and collection. The program reached 260,587 households by the end of Phase I in 2010 and Phase II aims to reach another 510,700 households within 4 years. Difficulties in coordination weaken housing sector governance. The Ministry of Construction (MoC) plays a lead role in regulating and overseeing the housing sector. However, due to the interdisciplinary nature of housing, this role requires convening across almost a dozen separate concerned ministries (including, inter alia, MoC, MoF, MPI, MoNRE, MoT and SBV), which is a difficult task without the necessary tools and support. Many central government bodies act as institutional silos with ad hoc coordination and reporting mechanisms, which limits the ability of MoC to design and deliver cost- effective and integrated housing programs. There is a need to structure a more robust coordination framework, as well as invest further in management information systems in order to improve market information and monitoring and evaluation (M&E) of the effectiveness of public programs. This will allow the government to more easily measure and improve performance of policy initiatives. Fiscal constraints also restrict investment in the housing sector. Though housing was identified as a key development target in the National Socio-Economic Development Plan, there is very little fiscal space to expand budget allocation beyond other priority sectors, for example, education and health. Vietnam’s fiscal position has deteriorated since 2006, due to a rise in recurrent expenditures and a drop in government revenues from 25.6 percent of GDP in 2009 to an expected 20.1 percent of GDP in 2015. Public debt has reached above 60 percent of GDP, only slightly below the government’s legal limit of 65 percent and the budget deficit has remained consistently above 5 percent of GDP. As a result, there are constraints for the introduction of new programs, a focus on decentralizing resource commitments to local governments and on cost recovery possibilities for public investments. Some local governments have prepared innovative housing projects, yet most need support to become more effective in affordable housing provision in their cities. Local governments have the mandate for housing provision, but often do not prioritize housing despite the magnitude of the demand, xvi Vietnam Affordable Housing due to a lack of technical know-how and ability to plan and mobilize resources toward the sector. Local Housing Development Funds, which were intended to act as a conduit at the provincial level to implement the 2005 Housing Law, have failed to be established in most cities due to lack of funding and guidance, and where they have been, have only had limited success. Subsequently, government have decided to merge these bodies with the Local Development Investment Funds, which have a new provision that allows for investment in public housing programs, yet still no guidance on local interventions in the sector. Local governments also depend heavily on central level regulatory approval, which can cause delays and restrict innovation in the sector. Nevertheless, there has been innovation at the local level, including efforts to pilot land readjustment in the Mekong Delta for flood-prone households and Public-Private Partnerships (PPPs) between employers and local government for mixed-use worker housing in Da Nang’s industrial zones, which provide an opportunity for replication and scaling. The Central Steering Committee (CSC) on Housing and Real Estate Market Policy is an important effort toward integration. Headed by the Deputy Prime Minister, this body was established to advise the Prime Minister on real estate and housing market interventions. The multi-disciplinary working group including all ministries relevant to the sector, as well as the directorates for agricultural development, labor federation, and urban management and construction, among others, has the mandate to advise and provide inputs into proposed housing programs and also to play a coordinating role for respective line ministries, bureaus, and directorates. However, the CSC has yet to possess clearly defined mechanisms for coordinating stakeholders, program implementation, and sector oversight. The Housing Law presents the opportunity for government to consolidate and increase public investment in the housing sector. The revised Housing Law, passed by parliament in November 2014 and effective as of July 2015, provides the legislative framework for government support and reform in priority areas for affordable housing. This includes self-built housing, affordable rental housing, redevelopment of old public housing blocks, improved sector management, real estate management information systems, among other items. The challenge now is to operationalize the 2015 Housing Law by building out a set of capable actors, effective delivery systems and initiatives that can be used to more effectively manage the housing sector and increase affordability for the lowest income. C. Roadmap Recommendations The Roadmap outlines a strategy to inform and shape the government of Vietnam’s interventions in the housing sector in the next five years. The primary recommendation is for the government to structure a National Affordable Housing Program as a vehicle to realize the objectives of the 2015 Housing Law. This Program would have three Flagship Initiatives and two Structural Reforms, as well as a package of supporting activities to strengthen management and regulation of the housing sector and to better target housing support toward the lowest income. The proposed structure of the National Affordable Housing Program is shown in Figure 2 and described in the following section. 1. Flagship Initiative: Housing Finance Assistance The first initiative aims to expand access to housing finance to low income and informal households and strengthen the overall lending environment. The main focus is to support development of a set of specialized housing finance products to meet the different needs of low income urban households, while reducing the market’s vulnerability to real estate speculation and the variability of investment cycles. A Way Forward xvii Figure 2 and Figure 8.1 Figure 1 Structure for a National Affordable Housing Program Housing A ordable Flagship Finance Rental Starter Home Initiative Initiative Initiative Initiative Institutional Strengthening Structural Reforms Urban Land Tax Reform Firstly, it is recommended to use a more cost-efficient approach to expand access to mortgage finance. This requires restructuring the 30 trillion program by shifting toward a mortgage-linked buy-down subsidy and introducing a broader focus on building the financial sector’s capacity for lending and managing housing finance risks. Specific activities will include designing and introducing the buy- down subsidy, investigating the feasibility of a secondary mortgage facility to provide a solution to long-term funding for banks, as well as a suite of activities to improve mortgage sector management, such as improved lending standards, risk management tools and monitoring systems. These are described in more detail in the report. Secondly, expand the availability of finance for home improvement or incremental expansion with support towards a savings and subsidy-linked housing microfinance product. Please refer to Figure 3 for the interaction between actors. In such a program, participating financial institutions will qualify eligible households for a housing micro-loan (e.g. loans up to VND 30 million, for around 3-5 years) that would be linked to a subsidy enhancement provided by government. Credit-worthiness of low income households may be established through a minimum period of savings (e.g. 12 months) or a pre-existing savings or lending history. Construction technical assistance would also be incorporated into the loan to lower costs and improve quality of construction. Home expansion could be used for own-use or for rental purposes, where small landlords will be encouraged to construct an additional room for rental. In the medium-term, another specialized housing finance product for development is a savings and subsidy-linked micro-mortgage. This product would target households with informal income for purchase of formal housing units and would also use a savings requirement for participating households (to help financial institutions to qualify people without a credit history or formal employment) and be linked to a government subsidy to enhance affordability for lower-income people. Micro-mortgages could be used in conjunction with the flagship initiative for starter homes. 2. Flagship Initiative: Affordable Rental Housing It is recommended to invest in the development of an affordable rental program, driven by local governments, to increase private sector provision of quality and affordable rental housing in priority areas. This program would initially focus on supply-side support that is complemented by a set of reforms and activities to create an enabling environment for the formal rental market. In time, demand-side assistance can be introduced to assist the poorest and most vulnerable households. xviii Vietnam Affordable Housing Figure 2 Example of Housing Microfinance Product National MFI’s & Housing • Subsidy enhancement Other FI’s Agency • Program design • Housing micro nance • Program oversight • Construction support (for home improvement or extension) • Subsidy provision Local Bene ciaries Governments • Flexible permitting • Informal income with existing home • Savings or lending history • Home expansion for own use or ‘expand-to-rent’ To incentivize production, government is recommended to structure capital subsidies (e.g. in cash, infrastructure or land, where appropriate) in order to engage a set of accredited actors (e.g. investors, landlords, NGOs or employers) to provide quality rental housing to target groups. In order to access subsidies, rental housing providers must make a commitment to maintain units at affordable levels for a set length of time for the target population (e.g. 10 years). Local governments would oversee projects, which could include mixed-use and mixed-income elements to support development of integrated and well-serviced neighborhoods, as well as the financial viability of projects. The initiative can be started with pilots in industrial zones to respond to existing demand, and after testing, expanded to address other priority groups in urban areas, including low income households (‘poor list’ households and those below the 40th income percentile), students and young families. To reach the lowest income and most vulnerable households, rental housing vouchers may be needed, in order to fill the affordability gap between the monthly payment capacity of the poorest families and the rental income required by private sector to ensure adequate returns for the project investment. 3. Flagship Initiative: Starter Homes The final initiative is focused on a program to support self-built housing with ‘starter home’ core units targeted at the lowest-income households, located in well-serviced urban, peri-urban and rural areas. Core units are typically one-floor with at least one room of 12 m2 or larger, are move-in ready and can be extended incrementally over time by households, according to their changing needs, preferences and payment capacity. Core units allow the lowest income, who are unable to self-provide, to have a formal start in their housing career, with basic infrastructure in place. Starter homes mitigate negative externalities that arise from completely self-built solutions in slum areas, such as public health issues, and are more cost efficient than ex-post neighborhood upgrading. A Way Forward xix Figure 3 Affordable Rental Housing Initiative NHA Banks • Savings account • (in future) housing nance Bene ciaries • Program design • LT rental nance • Program oversight (Renters) • Capital subsidy provision ($) • Rental payments Investors Local Governments PPCss Landlords • Targeting & selection • Equity • Capital subsidy allocation Employers • Operations Integrated Housing Site: • Land + Infrastructure Rental Housing • Commitment to w/ minimum rental Providers a ordability requirement (e.g. 40% rental) Core units can be developed on a large scale by a private developer, through a cooperative movement, or a mix of both. The ‘starter home’ initiative could involve partnership with an intermediary institution or association (such as MFIs, trade unions, worker unions, women’s groups), who would play a role in engaging and organizing groups of eligible low income households. Savings and subsidy-linked micro-mortgages can be used for the informally-employed, where households use regular savings to build up a credit-history (e.g. 12 months) to enable them to qualify for housing finance to purchase core house units. Local governments would play an important role to identify and develop appropriate land sites for core housing projects (either through land reserved under Decree 188, or other tools, such as land pooling and land readjustment etc.), engaging private sector contractors, and supervising offtake, where units are sold, rented or allocated to eligible households. In time, home-owners may elect to incrementally expand their units through housing microfinance and construction technical assistance. Figure 4 Starter Homes Initiative Financial Community NHA • Subsidy enhancement Institutions Organization • Program design • Program oversight • Pooling of HHs • Housing loan • Subsidy provision • Savings conduit • Savings • E.g.: WU, trade institution unions Contract or Local Households/ Build- Governments C ommunity Transfer • Targeting • Equity • Savings commitment • Site identi cation • Development loan • Input into starter home design • Bidding/RFPs • Sales/transfer • Community support • Infrastructure • Interim o -take xx Vietnam Affordable Housing 4. Structural Reform: Institutional Strengthening It is recommended to: (i) develop an over-arching body to carry out sector coordination and oversight; and (ii) focus on building capacity of local governments in at least five of Vietnam’s high- growth cities, to support them to become effective executing agents of national housing initiatives. An overarching body, hereby referred to as a National Housing Authority (NHA), would act as an over-arching coordinating body, across ministries and local governments, to oversee housing sector interventions. The NHA need not be a new institution, it could be anchored under a lead ministry, determined by GoV, or by establishing a new executive body at a higher level of government, or by expanding the mandate and capacity of the existing Central Steering Committee. Such an agency could have the following specific set of functions: - Coordinate and convene public agencies - Carry out policy analysis and development - Channel subsidies and support to local governments - Monitor and evaluate programs - Develop a common targeting framework - Oversee housing and real estate market information systems The NHA would also engage and support local governments toward preparation and execution of the Flagship Initiatives. Local governments play an important role in carrying out local needs assessments, identifying target households, facilitating land provision, administering subsidies, engaging private sector and reporting back results for the monitoring of programs. By creating common delivery systems, clear performance indicators and platforms for training and peer-to- peer sharing, central government can support and incentivize local governments to become more effective agents in affordable housing provision. Figure 5 Institutional Structure for Housing Sector Governance • Convenes Ministries/Public Agencies • Policy Analysis & Development National • Channel Subsidies/Support to LGs Housing Authority • Monitor & Evaluate Programs • Targeting & Segmentation • Housing Real Estate Information System • Targeting & Selection • Program Executing Agent Local • Manage Land Resources Governments • Deliver Infrastructure • Streamline Admin. Steps • Reporting Back to NHA A Way Forward xxi 5. Structural Reform: Urban Land Tax To build out these housing initiatives in a sustainable way, the government is recommended to consider adjustments in the structure of land taxation. It is recommended that, in the short term, steps are taken to progressively increase the LPF so that it is in alignment with the market prices of land, as this can be undertaken within the existing legislation. Secondly, it is recommended that increases in the annual land tax rate or the addition of a levy or property tax5 be considered as part of the review of the implementation of the 2013 Land Law. The new structure would raise land tax revenues in a phased and progressive way, to enable local governments to better manage land resources, dampen speculation, raise revenues, and increase land supply for a better functioning market. In order to avoid any adverse effects on the low income, land right use holders may be charged with additional tax increments for multiple and larger land-holdings based on approved land use, whether developed or not. With proper implementation, land tax reform would be achieved without any negative consequences to low income households. On the contrary, increased land taxation will reduce incentives for investors to hold idle land and mitigate the inflation of land prices from speculation, thus facilitating affordable housing for the urban poor, and ultimately improving the affordability of new formal housing. Increases in the LPF will also improve the compensation of existing land use right holders whose land is acquired for state-approved development projects. Figure 6 Schematic of Urban Land Tax Government Actors Subsidy Land Taxation Increased Market Value 5 Any fee should be based on the land value (rather than the value of built property) and could be introduced as a surcharge to the land tax, possibly temporarily, in order to finance specific projects (e.g. a betterment levy) or may be considered an option to circumvent the tax rates that are fixed in the Land Law. xxii Vietnam Affordable Housing 6. Creating an Enabling Environment for the Affordable Housing Market Beyond the Flagship Initiatives and Structural Reforms outlined in the proposed National Affordable Housing Program, the Roadmap outlines a detailed agenda of supporting regulatory and investment activities in six areas of priority action. These will be critical to supporting the success of policies and improving management of the housing sector. These are listed below and described in the report in more detail. Housing Finance: - Continue to support development of specialized savings and subsidy-linked housing finance products to address the gap in access to housing finance. - Ensure the safety and soundness of the mortgage sector by enhancing prudent lending standards, strengthening monitoring and risk management tools. - Facilitate access to long-term funding by assessing the feasibility of a secondary mortgage facility, in order to deepen the lending capacity of the financial sector. - Develop a framework for financial literacy and borrowers’ protection. - Support development of micro-finance regulations. Access to Land: - Build systems to reclaim undeveloped land, which has been allocated to investors, if it is not developed within the specified period. - Introduce land pooling and land readjustment (LPLR) as pilot projects in three cities to improve efficiency and equity of land development and increase land supply. - Design clear bidding frameworks (i.e. Request for Proposals or RFPs) in order to create a more competitive and transparent system for selling and allocating development rights to public land holdings. - Strengthen the implementation guidance of land contribution decrees (e.g. Decree 188) with support to local governments to strengthen enforcement capacity, improve valuations and tracking of land contributions, and systems to release land for social housing programs. - Expand “one-stop-shop” model to streamline land-related services and provide local interfaces with district administration. - Replace one-off land use fee with a modest administrative charge to increase incentives for all land holdings and transfers to be registered. - Prepare a coordinating framework, for all land-related functions to improve coordination across involved ministries. Affordable Rental Housing: - Improve market information for the rental sector to increase visibility and understanding of the sector. - Strengthen legislative framework for rental, including landlord-tenant relations, business registration, income tax waivers for rental providers, and introducing more flexibility into rental housing regulations. - Support innovation in rental housing finance e.g. long-term financing for landlords and investors. - Scale the capital-subsidy program to support affordable rental in more priority areas for target groups. A Way Forward xxiii - Introduce time-bound rental vouchers to enhance the payment capacity of the lowest income, which could be coupled with supply-side support. Self-Built Housing: - Expand urban upgrading programs with delivery of infrastructure to under-serviced areas. Upgrade or redevelop in-situ, or voluntarily resettle, as per preferences through community participation. - Scale flagship initiatives for incrementally self-built and core housing. Developer-Built Housing: - PPPs to improve old housing stock. Develop and implement a model to incent developer participation in redevelopment of public housing blocks (e.g. through development bonuses). - Promote shared tenure models, including condos and coops, with an emphasis on improved Home-Owners’ Associations. - Explore transferable development rights and strengthen mechanisms for payment in lieu of land contributions. Housing Sector Governance: - Invest in the building blocks of effective governance, including improved management information systems for the housing sector, development of good targeting frameworks and program monitoring and reporting procedures. - Improve regulatory and administrative environment. Assess and standardize administrative processes for land and housing development (e.g. e-systems, simplifying or minimizing steps). Carry out a regulatory audit and make necessary adjustments toward clear and consistent legislation. xxiv Vietnam Affordable Housing Table of Contents Executive Summary xi A. Summary xi B. Sector Assessment xii C. Roadmap Recommendations xii 1. Flagship Initiative: Housing Finance Assistance xiii 2. Flagship Initiative: Affordable Rental Housing xviii 3. Flagship Initiative: Starter Homes xix 4. Structural Reform: Institutional Strengthening xxi 5. Structural Reform: Urban Land Tax xxii 6. Creating an Enabling Environment for the Affordable Housing Market xxiii Chapter 1: Country Context 2 1.1 Macro-Economic Situation 2 1.2 Urbanization and Poverty Trends 3 1.3 Real Estate and Construction Sector 4 1.4 Priorities of Government Development Policy 5 Chapter 2: Housing Sector Governance 7 2.1 Institutional Framework 7 2.2 Legislative and Policy Framework 11 Chapter 3: Housing Need, Demand and Affordability 14 3.1 Housing Need 14 3.2 Housing Demand and Affordability 15 3.2.1 Household Income and Savings Capacity 15 3.2.2 Access to Housing Finance 16 3.2.3 Housing Demand and Affordability for Q3-Q5 Income Segments 17 3.2.4 Housing Demand and Affordability for Q1-Q2 Income Segments 19 3.3 Housing Policy Implications 20 Chapter 4: The Housing Supply and Delivery System 21 4.1 Overall Context for Housing Supply 21 4.2 Commercial Housing Sector 23 4.2.1 Overview of the Commercial Housing Sector 23 4.2.2 The Cost Structure of Commercial Housing Development 25 4.2.3 Policy Challenges and Opportunities in the Commercial Housing Sector 26 4.3 Rental Housing Sector 28 4.4 Self-Built Housing Sector 33 Chapter 5: Housing Finance 38 5.1 Housing Finance Sector Assessment 38 5.1.1 Overall Sector Context 38 5.1.2 Housing Finance Demand 38 5.1.3 Housing Finance Delivery Actors 39 5.1.4 Systematic Sector Challenges 42 5.2 Assessment of the 30 Trillion Stimulus Package 47 Chapter 6: Land Management and Urban Planning 52 A Way Forward xxv 6.1 Overall Context For Urban Land 52 6.2 Management and Administration of Urban Land 52 6.2.1 Legislative Framework 52 6.2.2 Land Administration 53 6.2.3 Land Use and Urban Planning 54 6.3 Economics and Taxation of Urban Land 55 6.3.1 Land Taxation 55 6.3.2 Economics of Urban Land Challenges 55 Chapter 7: Government Housing Interventions 57 7.1 Existing Government Initiatives 57 7.2 Housing Policy Looking Forward 60 Chapter 8: Objectives of the Roadmap 62 8.1 Introduction to the Roadmap for Affordable Housing Policy 62 8.2 Roadmap Goals 62 8.3 Roadmap Recommendations 63 Chapter 9: A Framework for Housing Policy Reform for Vietnam 64 Chapter 10: Recommendations for Housing Policy Reform 65 Chapter 10.1: Housing Finance 65 10.1.A Develop Specialized Housing Finance Products to Reach Underserved Segments 65 10.1.B. Strengthen the Housing Finance Sector’s Capacity for Lending 69 10.1.C. Other Market-Making Measures to Improve Access to Housing Finance 72 Chapter 10.2: Land Management and Urban Planning 73 10.2.A Adjust the Land Taxation Framework 73 10.2.B. Adopt an Integrated Urban Development Strategy 75 10.2.C Other Market Making Measures to Support Land Supply 78 Chapter 10.3: Affordable Rental Housing 79 10.3.A. Invest in Supply-Side Support for Affordable Rental Housing 79 10.3.B. Demand-Side Rental Housing Assistance 81 10.3.C. Other Market-Making Measures to Support Affordable Rental Housing 83 Chapter 10.4: Self-Built Housing 85 10.4.A. Develop a Program for Expandable Starter Homes 85 10.4.B. Neighborhood Development and Improvement of Substandard Homes 87 10.4.C. Other Market-Making Measures to Support the Self-Built Housing Sector 89 Chapter 10.5: Developer-Built Housing 91 10.5.A. Structure PPPs for Affordable Housing Delivery 91 10.5.B. Explore Introduction of Development Right Incentives 93 10.5.C. Other Market-Making Measures to Support Developer-Built Housing 95 Chapter 10.6: Housing Sector Governance 96 10.6.A. Institutional Strengthening 96 10.6.B. Building Blocks of Housing Sector Governance 98 10.6.C. Other Measures to Strengthen Housing Sector Governance 99 Chapter 11: Strategic Implementation Plan 101 Annex A Reference Data for Affordability Analyses 103 Annex B Overview of Public Housing Programs 109 Annex C List of Key References 116 Figure: Figure 1 Structure for a National Affordable Housing Program xviii xxvi Vietnam Affordable Housing Figure 2 Example of Housing Microfinance Product xix Figure 3 Affordable Rental Housing Initiative xx Figure 4 Starter Homes Initiative xx Figure 5 Institutional Structure for Housing Sector Governance xxi Figure 6 Schematic of Urban Land Tax xxii Figure 1.1 Composition of FDI Commitments 2 Figure 1.2 Share of GDP by Sectors, 1986 - 2009 3 Figure 1.3 Gross Output of the Construction Sector by Segment in 2013 5 Figure 2.1 Institutional Structure of Vietnam’s Housing Sector 10 Figure 2.2 Housing Financing in Ho Chi Minh City 11 Figure 2.3 The Evolution of Vietnam’s Housing Policy 12 Figure 3.1 Type of Housing Deprivation by Region as Compared Against Regional Household Distribution 15 Figure 4.1 Changes in Housing Production over Time 21 Figure 4.2 Share of Foreign Direct Investment (FDI) in Real Estate 23 Figure 4.3 Secondary Prices for HCMC and Hanoi 24 Figure 4.4 Total Accumulative Supply from 1999 to Quarter 3, 2014 24 Figure 4.5 Distribution of Industrial Companies across Provinces 29 Figure 5.1 The Structure of Vietnam’s Banking Sector 40 Figure 5.2 NPL Ratio in Vietnam, Compared to other Asian Countries 43 Figure 5.3 Bank Loan and Deposit Break-down by Term, 2011 44 Figure 8.1 Structure for a National Affordable Housing Program 63 Figure 10.1 Categorization of Household Type and Matching Housing Finance Products 66 Figure 10.3 Level of NPLs of Different Market Segments and Actors in India 69 Figure 10.2 Affordable Rental Housing Initiative 80 Figure 10.3 Proposed Structure for Housing Sector Governance 97 Figure A.1 Urban Population by Province (thousand persons) 104 Figure A.2 Urban Household Size by Area 105 Figure A.3 Qualitative Housing Deficit by Area 105 Figure A.4 Low-End Commercial Housing 106 Figure A.5 Low-End Social Housing 106 Figure A.6 Low-End Tube Housing in Hanoi 107 Figure A.7 Low-End Tube Housing in HCMC 107 Figure A.8 Lowest-Cost Self-Built Housing 108 Figure A.9 Existing Rent levels in Various Cities in Vietnam 108 Figure B.1 Budget Allocation for Public Housing Programs since 1995 115 Table: Table 1 Affordability based on Income Quintiles of Urban Households xiv Table 1.1 Poverty Levels in Urban Areas by Class of City and Rural Areas, 2012 4 Table 2.1 Role of Key Government Entities on Housing 7 Table 3.1 Number of Urban Households by Year and Geographic Region 14 Table 3.2 Qualitative Housing Deficit by Type of Housing Deprivation, Urban Vietnam 15 Table 3.3 Average Savings Capacity by Household Income Quintiles, 2014 16 Table 3.4 Effective Demand for Housing by Household Income in Urban Vietnam, excluding Hanoi and HCMC, 2014 17 Table 3.5 Effective Demand for Housing byHousehold Income in Hanoi, 2014 17 Table 3.6 Effective Demand forHousing by Household Income in HCMC, 2014 18 Table 3.7 Housing Demand by Household Income in Vietnam, excluding Hanoi and HCMC, 2014 19 Table 3.8 Housing Demand by Household Income in Hanoi, 2014 19 Table 3.9 Housing Demand by Household Income in HCMC, 2014 20 Table 4.1 Average Annual Housing Production in Urban Areas 21 Table 4.2 Share of Housing of Each Typology 22 A Way Forward xxvii Table 4.3 Example of Various Common Housing Typologies 22 Table 4.4 Housing Months-in-Inventory 25 Table 4.5 Affordability Analysis for Hanoi and HCMC 25 Table 4.6 Example of Cost Structure for Two Developers 26 Table 4.7 Affordability of Monthly Rent Levels 31 Table 4.8 Labor and Construction Costs of Tube Houses and Grade 4 Houses 33 Table 4.9 Average Home Size in Urban Vietnam 34 Table 4.10 Example for the Costs of a New Self-Built Homes 35 Table 4.11 Examples of Low-End Tube House Prices in Hanoi and HCMC 36 Table 4.12 Access to Basic Services for the Urban Population, by Quintile 37 Table 5.1 Real Estate Loan Outstanding in the Banking System 38 Table 5.2 Standard Mortgage Product offered by Commercial Banks 39 Table 5.3 Housing Finance Actors by Income Type and Urban/Rural 41 Table 5.4 Comparison of Housing Micro-Loan Products 42 Table 5.5 Examples of Capacity-to-Pay Guidelines by Select Lending Institutions 45 Table 5.6 Key Characteristics of the 30T Package 47 Table 5.7 Implicit Subsidy Rate in the 30T Program and Sensitivity Analysis 49 Table 5.8 National Program Status as of February 28, 2015 49 Table 5.9 Status of the 30T Package Disbursement 50 Table 7.1 Overview of Government Housing Programs 58 Table 10.1 Risks Related to the Development of Specialized Housing Finance Products 68 Table 10.3 Risks Related to Adjusting the Land Taxation Framework 74 Table 10.4 Risks Related to Integrated Land Development 77 Table 10.5 Risks for the Rental Housing Capital Subsidy Program 80 Table 10.6 Risks Related toRental Housing Vouchers 82 Table 10.7 Risks Related toSupporting the Self-Built Sector 90 Table 10.8 Risks for PPPs for Affordable Housing Delivery 92 Table 10.9 Risks Related toTransfer Development Rights 95 Table 10.10 Risks Related toInstitutional Reforms 97 Table 10.11 Risks Related to the Housing Sector Building Blocks 99 Box: Box 1 Examples of Vietnam’s Government Interventions in Affordable Housing xv Box 4.1 Industrial Zones in Vietnam 29 Box 4.2 Characteristics of Housing Preferences 34 Box 5.1 List of Relevant Regulations Issued by SBV 45 Box 10.1 International Examples of Specialized Housing Finance Products 68 Box 10.2 Moroccan Example of a Guarantee Fund for Informal Sector Segments 72 Box 10.3 Lessons from International Experience in Land Value Taxation 74 Box 10.4 International Examples of Integrated Land-Use Planning and Land Value Capture 77 Box 10.5 International Experiencein Supply-Side Rental Housing Programs 81 Box 10.6 International Experiencesin Rental Housing Vouchers 83 Box 10.7 Thailand’s Long-Term Credit for Rental Housing Investors 85 Box 10.8 International Experience in Sites and Services and Incremental Housing Programs 86 Box 10.9 International Experiences in Urban Poverty Reduction and Home Improvement 88 Box 10.10 Participatory Frameworks for Neighborhood Development 90 Box 10.11 International Experience in PPPs for Affordable Housing Delivery 92 Box 10.12 Examples of Development Right Incentives for Social Housing 93 Box 10.13 International Examples of Development Right Incentives 94 Box 10.14 Urban Renewal Areas and Redevelopment Authorities (RDAs) in the U.S. 96 Box 10.15 International Examples of Housing Governance Structures 97 Box 10.16 Thailand’s Real Estate Information Center (REIC) 99 xxviii Vietnam Affordable Housing Vietnam affordable housing I Part A Comprehensive Assessment of Vietnam’s Affordable Housing System A Way Forward xxix 1 Chapter Country Context 1.1 Macro-Economic Situation address distortions in the state enterprise and banking sectors. Vietnam has largely managed Over the past two decades, Vietnam has to bring under control chronic inflation, maintained one of the fastest growing economies which peaked at 23 percent in August 2011 in the world and achieved a substantial and has since fallen to a low of 2.6 percent in reduction in poverty. Vietnam’s economy November 2014, with a set of policies focused was transformed through a series of market- on maintaining macro-economic stability, based reforms carried out under Doi Moi since addressing the banking sector’s vulnerabilities 1986. Since then, the country has experienced and reforming state-owned enterprises impressive economic growth, averaged at 7.4 (SOEs). The State Bank of Vietnam (SBV) has percent per annum from 1990 to 2008, lowering overseen a number of merger and acquisitions to an average of 6 percent per annum from 2007 to remove weaker players and manage bad to 2013. This growth has been associated with a debts. There were 74 SOEs equitized in 2013 substantial reduction in poverty levels, from 58 (thrice the number of 2011 and 2012) and a percent in 1993 to 17 percent in 20126. target of another 200 for 2014. The Vietnam Asset Management Company (VAMC) has Market volatility from 2009 until 2012 absorbed around VND90 trillion or around highlighted the need for further reforms to US$4.2 billion worth of non-performing loans (NPLs), as of October 2014, yet the total volume of NPLs in the Figure 1.1 Composition of FDI Commitments market is still unclear and VAMC FDI Commitments is still to implement a strategy to (In billions of USD) actually resolve these7. 30 Manufacturing/processing Wholesale/retail Rael estale Others 25 The outlook is positive with continued macro-economic 20 stability and strong performance 15 of the foreign-invested manufacturing export sector. 10 Vietnam has attracted large 5 inflows of Foreign Direct Investment (FDI) for export 0 2009 2010 2011 2012 2013 production due to favorable investment conditions and its Source: Adapted from IMF Article IV, 2014. low-cost and high-quality labor 6 World Bank. Well Begun, Not Yet Done: Vietnam’s Remarkable Progress on Poverty Reduction and the Emerging Challenges. Vietnam Poverty Assessment. Hanoi. 2012. 7 World Bank. Taking Stock: An Update on Vietnam’s Recent Economic Developments. December 2014. 2 Vietnam Affordable Housing force. Positive macro-economic developments which has played an important role in sustaining and steps to resolve NPLs have contributed to Vietnam’s economic growth9. an improvement in the government’s sovereign risk rating from B2 to B1 by Moody’s and from 1.2 Urbanization and Poverty Trends B+ to BB- from Fitch, boosting investors’ confidence. This enabled the government The structural transformation of Vietnam’s to recently issue US$1 billion of bonds on economy will be supported by urbanization international capital markets, which was ten and new employment opportunities in cities. times oversubscribed, at a favorable annual Currently, 32 percent of the total population, interest rate of 4.8 percent. Liquidity injections or 29 million of 89 million people, live in urban have brought some relief to issues that have areas. The growth rate of the urban population reduced the lending capacity of the banking has averaged 3.5 percent per annum since 2000, system and contributed to a sharp slowdown in one of the highest in the region. For every domestic credit, from a height of 31.9 percent additional percentage of urbanization, Vietnam of GDP in 2010 to below 15 percent in 2015, has achieved 8 percent in GDP growth, which is yet recovery has been slow8. reasonably strong compared to other countries in the region (6 percent for China, 10 percent Vietnam has been undergoing a major structural for Thailand and only 2 percent for Indonesia). shift away from agriculture toward services Continued rural-to-urban migration will be and manufacturing. Between 1990 and 2014, important to sustain Vietnam’s large gains in agriculture’s share of GDP dropped from 39 to economic production and poverty reduction, 17 percent, and its share of total employment with a shift in employment from informal and decreased from over 70 percent to close to half low-productivity areas to formal jobs in the of the total workforce. Most of these jobs were services, industrial and manufacturing sectors. taken up by the manufacturing and service sectors, where new job creation has increased Population growth is increasingly concentrated the share of the workforce employed in services in a few high-growth regions. Spatial analysis from 18 to 32 percent, and those employed in shows that more than 50 percent of urban manufacturing from 8 to 14 percent. There has land in the country lies within the boundaries also been movement of labor away from Figure 1.2 Share of GDP by Sectors, 1986 - 2009 household businesses 60% toward firms in the enterprise sector and a 50% reallocation from state- 40% owned firms toward Share of GDP 30% private domestic and foreign-owned 20% firms. These large 10% structural changes in employment toward 0% 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 higher value and -10% productive sectors has led to an overall growth in aggregate AGR MAN MIN SER labor productivity, Source: McCaig, B. Pavcnik, P. Moving Out of Agriculture: Structural Change in at an average of 5.1 Vietnam. 2013. AGR: Agriculture, MAN: Manufacutring, MIN: Mining; SER: Services. percent annually, 8 Ibid. 2014. 9 McCaig, B. Pavcnik, P. Moving Out of Agriculture: Structural Change in Vietnam. 2013. Country Context 3 of Hanoi and Ho Chi Minh City (HCMC), measure for inequality, has risen from 33 in 1993 as well as 75 percent of new urban spatial to 43 in 2008, which is above the warning level. growth10. Meanwhile, the population in rural One major focus going forward will be ensuring areas has stagnated, with outmigration at there is space for the urban low income in cities 13.3 percent, exceeding the rate of natural and maintaining such a high level of inclusive population growth. Industrial zones are another urban growth in Vietnam’s large cities. area of high growth, with currently 2.25 million people working in 295 industrial parks and 15 Continued economic development, increases economic zones across the country. Attracting in income and urban population growth will further investment and stimulating job creation result in high demand for housing in cities. in industrial zones is an important part of GNI per capita has increased from US$400 in Vietnam’s long-term development strategy, 2000 to US$1,740 in 201311. This economic with a target under the national master-plan of growth has been associated with rising reaching 7.2 million industrial workers by 2020. incomes and increased appetite for housing consumption. Housing makes up 27.1 percent These high-growth regions have contributed of total expenditures for the highest income substantially to spearheading poverty reduction, quintile, while only 7.5 percent of expenditures yet increasing inequality remains a concern. for the bottom income quintile (with food Income growth has been concentrated mainly accounting for 58.3 percent). Also, income around the large cities and in areas with export- changes and socio-cultural preferences are oriented economic activities. Poverty levels are reducing the average size of urban households substantially lower in cities and in particular, from 4.36 persons in 1999 to 3.64 persons large cities, than rural areas, where the poverty in 2014. These factors, in additional to the rate is still elevated at 22 percent of the rural urban growth patterns described earlier, are population. Only 1.9 percent of the population contributing to a high growth in the number of the Special Cities, Hanoi and HCMC, are of urban households which will translate into classified as poor, and only 3.8 percent in the strong demand for urban housing, particularly Class 1 cities, compared to the average poverty in Vietnam’s large cities and industrial zones. rate of cities at 5 percent, with small cities and towns accounting for 55 percent of the total 1.3 Real Estate and Construction urban poor or an average of 11.2 percent of their Sector population. Economic development has enabled significant progress, but the benefits have not Since the late 1990s, the state’s recognition of always been shared equally. The Gini coefficient, a the market price of land and housing has led to Table 1.1 Poverty Levels in Urban Areas by Class of City and Rural Areas, 2012 Special Class 1 Class 2 Class 3 Class Rural City 4,5 Number of cities in category 2 7 14 45 634 Average population (000) 4,075 467 225 86 11 % of total population 9.5 3.8 3.7 4.5 8.1 70.4 % of urban population 32.1 12.9 12.4 15.3 27.3 Poverty rate (%) 1.9 3.8 4.2 5.8 11.2 25.6 Poverty gap (%) 0.4 0.6 0.7 1.1 2.4 6.8 Share of urban poor (%) 11.0 8.8 9.2 5.9 55.0 Source: Vietnam Poverty Assessment 2012. 10 World Bank. East Asia’s Changing Urban Landscape. Washington, DC. 2015. 11 Calculated using the Atlas Method. World Bank Databank. 4 Vietnam Affordable Housing extremely high profitability in the real estate and economic growth. The construction sector market, attracting a high level of investment. has experienced a compound annual growth Between 2007 and 2008, foreign direct rate (CAGR) of 10 percent from 2005 to 2013, investment (FDI) in the real estate sector has peaking at 25 percent in 2013. The private sector increased from 35 percent of the total USD 20 plays a major role in driving the growth of the billion registered FDI in 2007 to 54 percent of construction industry. The share of gross output USD 64 billion of FDI in 200812. This substantial in the sector generated by the private sector inflow and over-investment contributed to reached 84 percent in 2013 mainly in residential uncontrolled credit growth, inflated prices and construction and infrastructure development via subsequently the real estate bubble that led to Build-Transfer (BT) and Build-Operate-Transfer a high number of NPLs, which were primarily (BOT) financing models. The residential segment caused by defaults on developer financing, and grew from 27 percent of gross outputs in 2005, over-supply of unsold or uncompleted stock. The to 40 percent in 2013. Not only did the sector boom and bust was detrimental to both financial weather the impact of the country’s real estate stability and the real economy. market slump and the global economy’s stagnant growth, it has also created employment for 5.2 Nevertheless, the construction sector has percent of the population. become an important source of employment Figure 1.3 Gross Output of the Construction Sector by Segment in 2013 (VNDtn) 2005 2009 2010 2011 2012 2013E 300 250 200 150 100 50 0 Residential Non-residential Infrastructure Source: Data from General Statistical Office (2013), adapted from VPBS 2014. 1.4 Priorities of Government the National Target Program for Poverty Development Policy Reduction, the National Target Program for Employment, the National Target Program Government’s national priorities are outlined for Rural Water Supply and Sanitation, among in the five-year National Socio-Economic others, with varying levels of success. These Development Plans and have been largely priorities have now been consolidated into focused on social security, poverty reduction and only two main programs, Sustainable Poverty infrastructure development. In the 2011-2015 Reduction and New Rural Development that Plan, there was a set of 16 national programs will be the focus of Vietnam’s Socio-Economic launched to address a wide-range of socio- Development Plan for 2016-2020. economic issues, such as education, health and rural development, for different target groups. Public spending has focused largely on investment These programs were the responsibility of in infrastructure and social development. different executing ministries and have included Vietnam’s level of capital expenditure, at around 12 VPBS. Vietnam Construction Sector: Industry Coverage. Hanoi. March 2014. Country Context 5 6.5 percent of GDP, is moderate compared important tool to leverage financial resources to other countries in the region (around 8 to and expertise from the private sector, while 10 percent of GDP in China and Thailand). improving the quality and coverage area for There is also a strong focus on investment infrastructure services. Though, the legal and in social development sectors, such as health regulatory framework guiding PPP transactions and education, which have minimum budget is still in a stage of iterative development. allocation rules, for example, not less than 20 percent of total spending on education. Although Local governments play a key role in public service housing has been identified as a key social policy delivery. Vietnam has 4 tiers of government: target, there is very tight fiscal space to expand central, 63 provinces or cities, 700 districts or budget allocation beyond existing commitments. cities and towns, and 11,145 communes. Share of local government spending has been increasing, as Vietnam’s fiscal position has deteriorated Vietnam continues a process of decentralization, over the past decade. Vietnam relies heavily on from 47.5 percent in 2003 to 55.6 percent consumption taxes with revenues from VAT in 2012, which is relatively high compared and excise tax accounting for 33.4 percent of to other countries. There has been a rapid total revenue in 2013. Given the slow-down in expansion in capital spending at the local level, domestic credit and consumption, government from below 60 percent in 2003 to 74 percent revenues have declined from 25.6 percent of GDP of total capital expenditures in 2014. This rapid in 2009 to a projected 20.1 percent in 2015 and increase has created concerns over the efficiency total expenditures have been been rising steeply, and consistency of spending with national-level reaching 28.4 percent of GDP in 2013 and with objectives, capacity of local governments and a continued rise of 11.5 percent (year-on-year) in the strength of monitoring mechanisms. Focus the first nine months of 2014. This is largely due of the 2015 State budget law includes increasing to an increase in recurrent expenditures, which fiscal autonomy of local governments, improved made up 68 percent of the budget in 2013, and linkage between inter-governmental transfers and is relatively high compared to other countries strategic development objectives, shifting from in the region. Government debt has also risen a input-based budget to performance-oriented to above 60 percent of GDP, slightly below the system and improving budget accountability. legal limit of 65 percent. Although sovereign debt risk is considered low, the legal limit for the In the medium term, government will focus national debt, as well high and continued budget affordable housing policy toward supporting deficits (5.3 percent in 2013 and 2014), are other national targets and high-priority prompting a commitment to fiscal consolidation development programs. In particular, and conservatism toward new initiatives without affordable housing will be an important a clear cost recovery strategy13. component to complement the development of higher-productivity jobs in cities and industrial As part of a long-term financing strategy, zones, alleviating poverty of the poorest 40 the government is in the process of fiscal percent of the population, as well as facilitating consolidation and exploring ways to leverage achievement of the national targets for higher alternative sources of funds for investment in levels of urbanization. In the environment priority areas. One strategy being employed of fiscal consolidation and the government’s by government has been decentralizing commitment to macro-economic stability, responsibilities to local governments and there is also a focus on interventions that can another is developing a favorable framework to improve the efficiency of public spending attract private sector interest in infrastructure or enable cost recovery, as well as policies or investment. Among financing options, public- instruments to mitigate the risks of volatility in private partnerships (PPP) is seen as an the real estate market. 13 Tuan, T.B. PFM Reforms: The Lessons Learnt-Promises and Tears. Asian Regional Seminar on Public Financial Management. Phnom Penh. 26 November 2014. 6 Vietnam Affordable Housing 2 Chapter Housing Sector Governance 2.1 Institutional Framework different housing-related activities based on guiding decrees, decisions and circulars. The In terms of housing sector governance, key central-level actors include the Ministry the Ministry of Construction (MoC) of Finance (MoF), Ministry of Planning and plays a lead role, at the central level, in Investment (MPI), Ministry of Environment regulating and setting national policy and and Natural Resources (MoNRE), State Bank investment objectives for housing. Due to the of Vietnam (SBV), Vietnam Bank of Social interdisciplinary nature of housing, this role Policy (VBSP) and Ministry of Transport requires convening across around a dozen (MoT), among others. The activities of each of central-level ministries and government these government bodies, as related to housing, bodies, which are involved in implementing are described in more detail in Table 2.1. Table 2.1 Role of Key Government Entities on Housing Entity Housing-Related Functions Central Steering Committee The Central Steering Committee (CSC) is the Prime Minister’s for Housing and Real Estate advisory body for housing, led by the Deputy Prime Minister. Market Policy The CSC assesses market dynamics and trends and guides development of laws and policies related to housing and real estate markets. Ministry of Construction MoC is the lead agency responsible for housing, construction and urban development. MoC develops national housing policy, strategies and programs and oversees and guides program implementation and enforcement of regulations. MoC also leads the development of a housing sector database and collects housing sector performance data from local government and other actors. Ministry of Planning and MPI is the coordinating ministry that develops national Investment development plans, strategies for development investment, and tracks growth and investment statistics. In housing, MPI collaborates with MoC, related ministries, and local governments to develop housing development goals, investment policies, program incentives, and housing finance plans. MPI also provides oversight on all industrial development zones. Housing Sector Governance 7 Table 2.1 Role of Key Government Entities on Housing (Continued) Entity Housing-Related Functions Ministry of Finance MoF manages the state budget and property, and oversees development of fiscal policies related to housing. For local governments, MoF reviews and approves annual budgets and manages inter-governmental fiscal transfers. MoF oversees SBV’s annual performance reports, including interest rate subsidy and credit support programs, as well as managing bond market development and appraisal industry certification. MoF also determines policies related to land tax and tax- related subsidies for housing. SBV is responsible for the financial stability and soundness of State Bank of Vietnam the housing finance sector with lending standards, prudential regulations and management of interest rates. SBV engages commercial banks and non-bank financial institutions (e.g. microfinance institutions) in housing sector lending and supports development and manages housing finance subsidy programs. SBV also develops measures to encourage commercial banks to scale and diversify housing finance products and provides oversight toward the national credit information aggregator, the Credit Information Center. MoNRE’s General Department of Land Administration manages Ministry of Natural and administers land across the country. Related to housing, Resources and the MoNRE coordinates with MoC to conduct land use planning Environment and large-scale land use conversion, gathers land and housing registration and ownership statistics, issues land use rights, develops and operates the land information system, and carries out resettlement compensation and support. MoT makes investment and planning decisions over roads Ministry of Transport and public transit systems that directly affect the demand and pricing for land and housing near transport corridors and nodes. VBSP lends to community groups, co-ops, and households to Vietnam Bank of Social implement national social policy priorities, with emphasis on Policy rural, low income and poor segments. Funding comes from the state budget and other deposits. VBSP’s programs for housing lending involve small loans for sanitation improvement, housing renovation, and flood prevention. These programs utilize a community-based lending framework. Effectively managing such a large number effective and integrated housing programs. of actors requires clear mechanisms for As a result, many housing programs are coordination, which is difficult without the fragmented and it has been difficult to necessary tools. Currently, many government monitor and assess their performance. entities still act as silos in the housing sector, with only ad hoc coordination and reporting Reliable information on the housing sector systems, which limits the ability of MoC to is not yet readily available to support policy promote collaboration and prepare cost- formulation and decision-making. Within 8 Vietnam Affordable Housing the MoC’s Bureau of Housing and Real At the subnational level, local governments Estate Market, the Institute of Construction have the mandate to ensure the provision of Economics is responsible for monitoring affordable housing, yet often do not prioritize housing markets and government programs.The housing in spite of local needs. Many local Bureau collects annual reports from subnational governments lack the technical know-how governments and analyzes sector performance and ability to plan and mobilize resources to propose new policies and guidelines on policy toward the housing sector. Regulatory efforts implementation. However, GoV has recognized to require local governments to commit local that much more can be done to facilitate the funding and resources to housing have largely availability and sharing of up-to-date and not succeeded due to limited budget flexibility accurate housing information. MoC has now at the local level, lack of political buy-in, as been charged to develop and manage the well as limited guidance from central-level on housing and real estate information system. A how national programs can be implemented new decree has been drafted to define the scope, and maintained locally. the principles and the role of key stakeholders in contributing to its establishment and Creation of the Local Housing Development maintenance. This would cover market data as Funds (LHDFs) offers an example of the well as account for public spending in housing mismatch between national-level policy to allow better monitoring of the real estate objectives and local-level implementation. sector’s movements and development of more Intended as a conduit to implement the effective housing policies and program. 2005 Housing Law and structured by Decree 90/2006/ND-CP, LHDFs were designed to be The Central Steering Committee on Housing established at the provincial level and funded Policy and Real Estate Market (CSC) is a through sales of public housing, rental fees, land noteworthy effort to consolidate and guide the use fees, and local budget allocation. Eight years sector. Created in 2008 to provide advisory of implementation resulted in little uptake, with on housing policy, the CSC was expanded only 9 LHDFs being established, only 2 of which to cover the real estate market in 2009 and is carried out any major operations, due to limited headed by the Deputy Prime Minister. The budget set-aside by local governments14. In CSC consists of a multi-disciplinary working 2014, MoF proposed consolidation of LHDFs group from all relevant ministries, along with into the Local Development Investment Funds directorates for agricultural development, (LDIF), which have become more established labor federation, and urban management and and funded local implementing agents. In construction, among others. The CSC has comparison, LDIFs have a clear regulatory potential to act as a platform for dialogue on mandate, including income tax waivers, and proposed housing programs and to play a are managed through close coordination with coordination role for respective line ministries, Provincial People’s Committees (PPCs), bureaus, and directorates. However, CSC has MPI and MoF on standards for procurement, yet to possess the capacity or clearly defined financial planning and project execution. Several mechanisms for managing stakeholders, LDIFs have already been active in social housing program implementation, and to carry out projects, for example, student dormitories. other sector oversight activities. 14 According to reports from 41 provinces, there were only 9 housing development funds: 1 with independent operating structure (HCMC and Hue); 3 (Dong Nai, Lam Dong and Khanh Hoa) as part of the local development investment fund); 2 relegated housing responsibility to local development investment fund (Dak Lak, Binh Dinh); and 2 with fund established but not yet capitalized (Ca Mau, Ninh Thuan). In addition, 2 provinces (Ba Ria-Vung Tau, Dong Thap) set aside 183 billion VND at an account at the local treasury under the management of the Department of Finance (Report by MOF, mimeo received 8 January 2015). Housing Sector Governance 9 Figure 2.1 Institutional Structure of Vietnam's Housing Sector MoF National and local budgetting Budget Allocation Budget Policy Allocation Collaboration Check on progress toward national housing strategy MoC PPC Housing policy & development plan Executive decision body local level Policy Development of PRODUCTS FINANCING TARGET USERS Collaboration Local SEDP Public Housing * SBV DoC Banking sector regulations O cial DoF housing O cials MPI Socio-economic planning & investment DPI Civil servant housing Civil MoNRE 1. State servants budget (e.g. public Land management & land use planning DoNRE Housing for revenues, gov’t policy groups: bonds, municipal Policy MoLISA vets, the target bonds, and ODA) DoLISA disabled, etc. groups Social welfare policy 2. Contracted developer’s capital MoET Student DoET housing Students Support for students Policy Guidance *Public housing is often contracted out to contractors or developers via public auction; developer contributes project capital Resettlement Housing 1. Cross-subsidy Authorities from new use & PMU Resettlement Resettled 2. Developer equity for infrastructure housing households 3. Bank nance project 4. Multi-lateral donor $ Private Sector Housing Commercial 1. Developer equity All housing 2. Pre-sales proceeds people Developers 3. Bank nance Social (low rate for social Low income housing housing) households 1. Industrial zone Industrial Industrial Industrial companies $ developers worker housing workers 2. Bank nance KEY: Self-built Housing Central Gov’t 1. Household savings Self-built 2. Informal loans Owner housing 3. Bank nance household Local Gov’t People (low rate by gov’t for some) Disaster 4. MFI’s nance (low-income) Disaster a ected 5. Local gov’t budget a ected Non-Gov’t / housing HH’s Other for disaster a ected HH’s Source: Authors’ adaptation from ALMEC, 2006. Mismanagement at the local-level can increase or streamlining administrative requirements, costs of housing development and restrict private will allow local governments to enhance their sector participation. People’s Committees support of affordable housing delivery and a can be inconsistent and non-transparent in well-functioning local housing market. carrying out administrative procedures related to housing, which introduces uncertainty for There have been cases of local government market development and difficulties to carry innovation in the housing sector, yet out affordable housing projects. Timelines and dependency on central regulatory approval costs associated with the local construction can create hurdles. Some examples of local inspectorate in issuing development rights innovation includes land pooling and land and enforcing construction permits are usually readjustment (LPLR) schemes in Can Tho or unclear and can vary widely. This incentivizes integrated planning in Vinh City for mixed- people to remain informal and makes it income and mixed-use housing in partnership difficult for new market entrants or private with the private sector. However, both of these sector developers to plan and manage their initiatives have needed central-level approvals development costs. Better coordination and and legislative changes that have created transparency, such as utilization of online systems implementation delays and made it difficult to 10 Vietnam Affordable Housing scale pilots. The Da Nang Housing Company is policy implementation and experimentation, another example that provides an opportunity due to their more substantial local budgets for replication and scaling. In this case, Da Nang and the high capacity of the local government. carried out Public-Private Partnerships (PPPs) For example, HCMC has developed schemes between employers and local government to provide finance for both large-scale rental for mixed-use worker housing in Da Nang’s housing providers and small landlords to expand industrial zones. The Special Cities, Hanoi local supply of quality rental housing, although and HCMC, have also had more autonomy in uptake has been limited. Figure 2.2 Housing Financing in Ho Chi Minh City People’s Committee Legend: Oversight l Researches regulatory and policy development Financing ow l Supports development of public housing and housing markets l Manages land reserves Public Sector Private Sector Production Production Housing Private Sector Financing Resources Development Local Development Investment Fund Fund (formal nance, bonds, informal nance, pre-sales) Housing Saigon Limited Citizen RESCO JS Company Development Construction Liabilities households Fund Company Company O cial Civil Military Public Private Housing Servant Personnel Rental Housing Housing Housing Housing Source: Authors’ illustration based on interviews with the DoC of HCMC. 2.2 Legislative and Policy Framework first time, effectively enabling the start of a market-based real estate sector. Vietnam has gone through several waves of housing policy over the past three decades. In the decades since 1994, the real estate market Vietnam’s approach to housing policy has has experienced robust growth. A large number of shifted from a centrally planned public housing enterprising private sector developers and lenders approachto a market-oriented system following have emerged to respond to consumer demand. Doi Moi. Under the old system, housing was This has provided many benefits, including an considered a form of social welfare and provided overall improvement in housing conditions in mostly for free by government institutions and the market and an increase in the availability and state-owned enterprises, scarcely responding diversity of housing products, in terms of location, to need. There was little incentive and means configuration and price points, to suit different for housing investment and improvement, as household needs. However, this market-based nominal rents collected did not cover the cost approach has not resulted in adequate supply for of basic maintenance. On July 5, 1994, the lower income groups and has pushed up house government issued Decree 61/1994/ND-CP prices beyond the reach of many, keeping the level which allowed the trading of property for the of informality at a high level. Housing Sector Governance 11 Figure 2.3 The Evolution of Vietnam’s Housing Policy Public housing allocation in the 1991 Housing Ordinance 1994 Decree 60 2005 Housing Law 2015 Housing Law North targets public officials and Allowed private housing Established BOLUC system, providing Provide legal framework Provision for social civil servants. Self-built and existing ownership on state owned combined legal title for and use rights for housing development, housing, foreigners’ private housing makes up majority land. Establish legal and housing property. Formalization via inclu. commercial houses, ownership; housing of housing stock. framework on human notarization of many previously informal self-built houses, public transaction; housing rights to housing. transactions. During formalization process, service houses, social data & information many illicit transactions were notarized at houses. system; the de facto legal authority. • Removal of housing subsidy • 1996- Housing for • 2009- Mechanisms to promote students Establish lease price and meritorious people and workers housing housing support in wages • 1998- Incentives for • 2010- Guidelines for housing • Sell state-owned houses to investment in houses development projects, especially State-run, collective existing tenants. for sale& lease. condos and social houses. and subsidized • Still ban on land transactions Recognized rights of • 2013- Dev’t & mgnt of housing economy affected trading of housing housing investors. development investment in urban areas through a on state-owned land plots. • 2001- Exemption of & resettlement housing, social housing. production Cases in which tenant of land fees for condo. Provision for inclusionary zoning for plans and foods Multi-sector and transacted house is not • 2002- Sell land social housing in commercial projects. distribution. Strict reformed economy. the same owner of the and houses with regulations on Price deregulation. plot allocated by the state. deferred payment to Self reliant economy & pricing andinterest Market oriented Uncertain property rights households in flood- integration with global rates. Isolatedfrom monetary policy. created room for illicit prone residential economy. Privatization global economy, Controlled capital construction in peri-urban clusters in Mekong; of inefficient SOEs. except Soviet Union flow. Increased and rural areas. Central Highlands. Emergence of and East European external economic large scale state countries. relations. corporations. 1975 1986 1991 1994 2005-2015 Land Law 1987 Land Law 1993 Land Law 2003 Land is not a commodity. Land onwed by the Land allocated to Owned by the people & people by state domestic enterprises managed by the state. determines values. and lease to private Transactions between LURCs include rights to enterprise. LURCs individuals prohibited. transfer, lease, inherit, -main instrument in LURCs transferred only in and mortgage. Public real estate market. public systems. land allocation for SOEs only. Source: Authors’ illustration Experience over the past decade has led to the local governments to set aside land plots for 2015 Housing Law. Ratified by parliament in social owner-occupied and rental housing and November 2014 and effective July 2015, this include these in spatial plans. The development Law re-commits government into the role of of a more advanced housing information system, ensuring that low income Vietnamese are not which would be led by MoC and linked to excluded from the market and are supported the land cadaster and registry database, is also to access affordable and adequate housing. outlined as an activity to improve management This Law has re-oriented the focus of housing of the sector. On rental housing, there are new policy toward urban areas, in particular, self- stipulations on support for social housing for built housing and affordable rental, as means rent and rent-to-buy options for urban residents. to support the target grounds access suitable This includes a clearer legal framework on tenant housing solutions. The Law has made progress and landlord rights, directions on home-owners’ in clarifying definitions related to social housing associations, as well as for determining prices and broadened target groups. It maintains for social rental housing (e.g. restricting private support to the private sector in terms of tax and sector profits to 10 percent). Finally, the self- land-use fee waivers and specifically mentions built or incremental housing sector is identified the direct use of government budget, among as an important source of affordable housing other sources, to contribute toward ensuring supply and an eligible product for social housing housing access for all. support, such as tax exemptions and credit at preferential terms. Other key aspects of the new housing law include land management, information systems and The 2015 Housing Law opens up a number of housing delivery. There is a new mandate for opportunities for the Government of Vietnam 12 Vietnam Affordable Housing to develop new programs and refine existing ones. The Law has created a strong foundation, supported by the national assembly and other important public sector stakeholders for Vietnam’s housing policy in the coming years. However, there is still much work to be done to plan and prepare specific interventions in the housing sector and to ensure efficient use of public funds. To start with, it is important to clarify where the most urgent needs are to direct government support toward affordable housing, which is discussed in the next chapter on Housing Needs, Demand and Affordability. Housing Sector Governance 13 3 Chapter Housing Need, Demand and Affordability 3.1 Housing Need Urban areas will dominate demand for new housing between 2015 and 2020. The net There are two main sources of housing need: (i) migration rate for the urban areas of 23.7 the quantitative deficit of approximately 374,000 percent, compared to the out-migration of units per year due to new urban household the rural population at 13.3 percent per year, formation; and, (ii) an additional 320,000 to 1 demonstrates the critical need for housing in million units per year that need improvement or urban areas. The South East and the Red River replacement due to the qualitative deficit. Delta regions, where HCMC and Hanoi are located, are expected to account for 66 percent Population growth and household formation of total urban housing need between 2015 trends are the key contributors to the and 2020. More specifically, the South East quantitative deficit. The population of region has had a very high rate of migration urban households is projected to increase by over the last five years due to the region’s rapid approximately 1.9 million, from 8.3 million in economic growth and its concentration of 2015 to 10.1 million in 2020. This results in an industrial zones, which exist in four of its six average annual need for housing of 374,000 units provinces (Binh Duong, Dong Nai, Vung Tau in the next five years. This increase is driven by a and HCMC). The situation is similar for the projected urban population growth rate of 3.03 Red River Delta region, where a high demand percent per annum and a decline in the urban for labor has made it a destination for migrants household size of 1.1 percent per annum, based over the last five years. on recent trends. Table 3.1 Number of Urban Households by Year and Geographic Region (in 1,000 units) Year Urban Hanoi HCMC Red Northern North Central South Mekong Vietnam Extraction Extraction River Midlands Central & Highlands East River Total Delta & Central Delta Mountain Coastal Areas Areas 2009 6,470 715 1,441 1,572 521 1,155 362 1,952 932 Actual 2015 8,269 911 1,766 2,026 642 1,429 440 2,619 1,143 Estimated 2020 10,138 1,123 2,084 2,507 759 1,698 515 3,358 1,350 Forecast Average 374 42 64 96 23 54 15 148 41 Annual Increase Annual 100% 11% 17% 26% 6% 14% 4% 40% 11% Increase (% Total) Source: Authors’ extrapolations based on data and trends in Census 2009 and GSO data. 14 Vietnam Affordable Housing Vietnam will need to service, upgrade or rebuild Table 3.2 Qualitative Housing Deficit by Type an estimated 4.8 million housing units to address of Housing Deprivation, Urban Vietnam the qualitative deficit. On an annual basis, this means an additional 320,000 to 1 million units Census Urban each year, depending on whether the deficit 2009 Vietnam (100%) is reduced by 2030 or 2020. This includes the Crowding <6m2 per capita 4% housing deficit that is attributed to lack of access Sharing units 8% to basic infrastructure, aging stock, overcrowding, Quality Non-permanent 46% and construction with substandard materials. Before 1975 7% Basic No safe water 23% The qualitative housing deficit can be largely Services No safe sanitation 12% attributed to two main categories of housing: (i) Source: Census 2009. Figures for water and sanitation non-permanent houses and (ii) houses that lack are imputed based on probabilities from the VHLSS long-form and total population in the 2009 Census. basic services. Non-permanent units account for 46 percent of the total deficit and are defined as units lacking anyone or multiple of three durability elements (structural frame, roofs or walls) made of Figure 3.1 Type of Housing Deprivation sturdy materials. Houses that lack basic services, by Region as Compared Against Regional such as safe water or sanitation, account for 35 Household Distribution (HH Distribution of percent of the total deficit. Non-permanent units 6 Regions = 100%) are concentrated in the South East and Mekong 40% Delta regions, (as shown in Figure 3.1 below), 30% where non-sturdy materials are commonly used. While this categorization is in accordance with 20% international standards set by the UN Habitat, the 10% lack of permanent roofing material (3.7 million 0% South East Red River North Mekong North Mid Central units) is likely not a priority, given the more Central Delta High Household Crowding Quality Basic Svcs moderate climate conditions in the South. On the other hand, the lack of access to basic services, Source: Census 2009. Figures for water and sanitation are imputed based on probabilities from the VHLSS such as safe water or sanitation, which is common long-form and total population in the 2009 Census. throughout the regions, is a major concern. Specific priorities to address the qualitative deficit include the following: 3.2 Housing Demand and Affordability a. Installation of low-cost infrastructure and utilities to address the 2 million units that 3.2.1 Household Income and Savings Capacity lack access to basic services, such as water and sanitation. An analysis of housing affordability shows b. Home improvement for units made of which households and income segments substandard materials, which account for 46 struggle to access a housing unit to meet their percent of the total housing deficit. needs. Housing demand is determined by c. Targeted upgrading and incremental a consumer’s purchasing power, measured expansion of pre-1975 housing stocks, which by their disposable income for housing accounts for approximately 643,000 units, after satisfying other basic needs (e.g. food, to address overcrowding and substandard transport), savings and ability to access credit materials. to purchase a property. Housing affordability d. Extension or new supply for over-crowded assesses if a household’s demand or purchasing units, which make up 12 percent of the power is sufficient to access a property, housing deficit. considering the available supply and the prices e. Resettlement for housing on unsafe sites may of different housing products in the market need to be considered in consultation with (e.g. typologies, sizes, locations, etc.). the community. Housing Need, Demand and Affordability 15 Savings or down-payment capacity is extremely 20 percent down-payment for a housing loan. limited for low income households. Based on However, the lowest two income quintiles short-form data on household income and have a savings rate close to zero, or with higher expenditures from the Vietnam Household expenditures than household income, hence Living Standards Survey (VHLSS), it is limited ability to save for a down-payment, estimated that the top three income quintiles at least on average. These households may be have the capacity to save for a down-payment able to accumulate savings from other sources, to purchase a home (see Table 3.3). On average, as empirical evidence indicates that some Q1 it is expected that households will need to save and Q2 segments are still able to mobilize approximately five years to achieve the standard substantial funds toward housing projects. Table 3.3 Average Savings Capacity by Household Income Quintiles, 2014 (thousand, VND) Urban Vietnam Avg Avg HH Avg HH Income Expenditures Different (incl. Savings) Q5 29,805 21,330 8,475 Household Income Q4 14,279 12,628 1,651 Quintiles Q3 10,315 9,353 963 Q2 7,325 7,270 55 Q1 3,982 4,338 -356 Total 13,134 10,979 2,155 Source: Authors’ calculations based on 2012 VHLSS short form, adjusted for inflation (13%, 2012 - 2014). 3.2.2 Access to Housing Finance full documented income can obtain access to mortgage finance. Different income segments are able to access b. VND 30 trillion package is a subsidized different types of housing finance products. mortgage program currently available at a Higher income segments have more flexibility maximum fixed interest rate of 6 percent in accessing housing finance while lower per annum, with a maximum tenure of 15 income segments rely mostly on microfinance years and an LTV of 70 to 80 percent for institutions (MFIs) for smaller housing loans those households who meet strict eligibility for incremental construction. It should be noted criteria, such as first-time home purchase. that lending institutions in Vietnam generally do Refer to Chapter 5.2 for more details on the not lend to informal income borrowers without eligibility criteria of the 30T package. proper income and employment documentation c. Housing microfinance is available mainly or to those borrowers that intend to purchase for Q1 and Q2 income segments. As an properties with no formal tenure (i.e. LURC/ example of a product, the effective interest BOLUC). The main types of housing finance rate amongst microfinance institutions available in Vietnam are described below: (MFIs) participating in the Vietnam Urban Upgrading Program (VUUP) is a. Mortgage finance is currently available approximately 15 to 20 percent per annum15 at the prevailing floating interest rate of with loan tenure of 3 to 5 years. approximately 10 percent, Loan To Value d. Savings reportedly finance 50 to 75 percent (LTV) of 70 to 80 percent, with a loan of the self-built low income housing tenure of 15 to 20 years. Generally, only market. Cash is mobilized from household consumers with formal employment and/or savings, extended families and friends. In 15 The effective rate is calculated based on a loan term of 18 months (average) to 60 months (official term), 0.60 percent monthly interest rate calculated on a flat balance, and the effect of forced savings of 1.00 percent per month, on which the MFIs pay 3.00 percent interest. Further fees may apply, which have not been included in the effective rate calculation. 16 Vietnam Affordable Housing contrast, money-lenders appear not to play capacity and access to finance. Shown in Tables a significant role, due to unaffordability (e.g. 3.4, 3.5 and 3.6, a household’s purchasing power high interest rates). is determined by the average monthly income of households in each income quintile, their 3.2.3 Housing Demand and Affordability for payment capacity and the availability of different Q3-Q5 Income Segments housing finance products of different interest rate and loan terms, which are prevalent in the market. The effective demand for housing or purchasing Calculations have been carried out for all urban power of households in each income quintile areas in Vietnam, excluding Hanoi and HCMC, has been calculated based on income, payment as well as for Hanoi and HCMC separately. Table 3.4 Effective Demand for Housing by Household Income in Urban Vietnam, excluding Hanoi and HCMC, 2014 (thousand, VND) Financial Income Monthly Payment Term Rate Loan Down-Payment Housing Scenario Quintile Income Capacity Amount Demand Market- Q5 23,750 40% 9,500 20 10% 760,008 30% 325,718 1,085,726 based (constant Q4 12,753 30% 3,826 20 10% 306,077 20% 76,519 382,596 amort.) Q3 9,308 25% 2,327 15 10% 167,537 20% 41,884 209,421 Market- Q5 23,750 40% 9,500 20 10% 984,444 30% 421,905 1,406,349 based Q4 12,753 30% 3,826 20 10% 396,464 20% 99,116 495,580 (EMI16) Q3 9,308 25% 2,327 15 10% 216,535 20% 54,134 270,669 30 T Q5 23,750 40% 9,500 15 5% 977,153 30% 418,780 1,395,933 package Q4 12,753 30% 3,826 15 5% 393,527 20% 98,382 491,909 (constant amort.) Q3 9,308 25% 2,327 15 5% 239,338 20% 59,835 299,173 Source: Authors’ calculations. Table 3.5 Effective Demand for Housing byHousehold Income in Hanoi, 2014 (thousand, VND) Financial Income Monthly Payment Term Rate Loan Down-Payment Housing Scenario Quintile Income Capacity Amount Demand Market- Q5 38,096 40% 15,238 20 10% 1,219,062 30% 522,455 1,741,517 based (constant Q4 22,007 30% 6,602 20 10% 528,174 20% 132,043 660,217 amort.) Q3 16,093 25% 4,023 15 10% 289,679 20% 72,420 362,099 Market- Q5 38,096 40% 15,238 20 10% 1,579,060 30% 676,740 2,255,800 based Q4 22,007 30% 6,602 20 10% 684,148 20% 171,037 855,185 (EMI) Q3 16,093 25% 4,023 15 10% 374,400 20% 93,600 467,999 30 T Q5 38,096 40% 15,238 15 5% 1,567,365 30% 671,728 2,239,093 package Q4 22,007 30% 6,602 15 5% 679,081 20% 169,770 848,851 (constant amort.) Q3 16,093 25% 4,023 15 5% 413,827 20% 103,457 517,284 Source: Authors’ calculations. 16 EMI = Equated Monthly Installment Housing Need, Demand and Affordability 17 Table 3.6 Effective Demand forHousing by Household Income in HCMC, 2014 (thousand, VND) Financial Income Monthly Payment Term Rate Loan Down-Payment Housing Scenario Quintile Income Capacity Amount Demand Market- Q5 41,306 40% 16,522 20 10% 1,321,786 30% 566,480 1,888,266 based (constant Q4 15,639 30% 4,692 20 10% 375,335 20% 93,834 469,169 amort.) Q3 11,760 25% 2,940 15 10% 211,681 20% 52,920 264,601 Market- Q5 41,306 40% 16,522 20 10% 1,712,120 30% 733,766 2,445,885 based Q4 15,639 30% 4,692 20 10% 486,174 20% 121,544 607,718 (EMI) Q3 11,760 25% 2,940 15 10% 273,590 20% 68,397 341,987 30 T Q5 41,306 40% 16,522 15 5% 1,699,439 30% 728,331 2,427,770 package Q4 15,639 30% 4,692 15 5% 482,574 20% 120,643 603,217 (constant amort.) Q3 11,760 25% 2,940 15 5% 302,401 20% 75,600 378,001 Source: Authors’ calculations. Effective demand for housing for the top three home valued up to 30 percent higher than under income quintiles range from VND 1-2 billion the Constant Amortization (CA) method. The for the Q5 segment, and VND 200-800 traditional mortgage product that banks in million for the Q3-Q4 segments. This consists Vietnam offer to mortgage borrowers uses the of the following: CA method. While some banks do offer EMI - Q5 income segments can afford housing products, most consumers are familiar with and solutions of approximately VND 1.8 to 2 billion prefer the CA method, despite the limitations in Hanoi or HCMC. Households living in cities to affordability. outside of Hanoi and HCMC are able to afford homes in the range of VND 1 to 1.2 billion. Housing affordability is concerned with the - Q3 and Q4 income segments can afford availability of supply of suitable housing housing solutions between VND 300 to 700 products that are within the purchasing power million in Hanoi and HCMC. With the 30 of households. Considering this, housing trillion package, the Q3 and Q4 segments are affordability is excellent for households in the Q5 able to stretch their purchasing power and income segment and acceptable for households in afford homes in the range of VND 400 to Q3 and Q4 income segments, with the support 800 million. Ignoring the likely inflationary of the 30T package. Without the 30T package, effect of subsidies, the 30T package expands affordability for the Q3 segment would be tighter a household’s nominal purchasing power by in urban areas outside of HCMC, where the approximately VND 100 million through the supply of low-cost housing is more constrained. subsidized interest rate. However, depending on inflationary pressures, the real affordability - For the Q5 income segment, there is ample improvement may be significantly less. supply of housing at various price points that are - Q3 and Q4 income segments living in urban affordable to this group, from developer-built areas outside of Hanoi and HCMC can afford condominiums, villas or high-end tube houses. housing products in the range of VND 200 to - For the Q3 and Q4 segments, the supply of 400 million. With the support from the 30T housing that households could afford varies package, households are also able to stretch their greatly, depending on the region. purchasing power by approximately VND 100 l In HCMC, developers have begun building million, to the range of VND 300 to 500 million. smaller and lower priced units, starting at VND 400 million to attract first- Assuming the same interest rate, an Equated time home-owners in the Q3 segment. Monthly Installment (EMI) approach to Affordable housing supply, priced at the mortgage repayment schedule extends below VND 16 million/m2, has now affordability significantly, allowing the reached approximately 40 percent of total households across all incomes to purchase a developer-built supply in HCMC17. 18 Vietnam Affordable Housing l Developers in Hanoi have been slower to Incremental housing construction appears to be address this under-served market sector due the only affordable housing option for the urban to the higher price of land. Thus, supply of poor. MFIs in Vietnam generally support low low-cost housing only makes up ~20 percent income households with shorter-term loans for of total developer-built supply in Hanoi and incremental home expansion or improvement at units that are affordable to first-time home- an effective rate of approximately 15 to 20 percent owners in the Q3 income segments are likely for loan amounts of around VND 10 to 30 million. to be located far from centrally-located areas. Tables 3.7, 3.8, 3.9 highlight that households in the l Besides developer-built condominiums, low- Q1 and Q2 segments could generally repay a loan end tube houses with prices in the range of of VND 15 million to MFIs within 18 months VND 400-500 million in peri-urban areas on average. Penalty-free pre-payments benefit exist. The trade-off then revolves around households by allowing for more flexible payment individual preference between accessibility, schedules, despite longer loan terms (typically 5 livability and affordability. years). This flexibility also accommodates the needs of the poorest households who typically require 3.2.4 Housing Demand and Affordability for the entire loan period for repayment. In addition, Q1-Q2 Income Segments convenient community-based collection systems promote repayment discipline. Should households For the bottom 40 percent of the income pyramid be able to rely on own savings and/or kinship (the Q1 and Q2 income segments), housing networks for funding, a household’s purchasing demand is more constrained. Lower purchasing power and affordability can be stretched much power amongst the low income reflects a further depending on the generosity of the loan household’s lower share of disposable income, term and rate. If so, a starter home of VND 100 savings and ability to access housing credit. million, or even above, may be within reach. Table 3.7 Housing Demand by Household Income in Vietnam, excluding Hanoi and HCMC, 2014 (thousand, VND) Financial Income Monthly Payment Capacity Term Rate Loan Housing Scenario Quintile Income Amount Demand Kinship Q2 6,643 20% 1,329 5 0% 79,715 79,715 Q1 3,559 15% 534 5 0% 32,028 32,028 Q2 6,643 15% 996 1.5 20% 15,386 15,386 Micro- finance Q1 3,559 15% 534 3.2 20% 15,051 15,051 near-poor 2,717 10% 272 5.0 20% 10,255 10,255 poor 2,090 10% 209 5.0 20% 7,889 7,889 Source: Authors’ calculations. Table 3.8 Housing Demand by Household Income in Hanoi, 2014 (thousand, VND) Financial Income Monthly Payment Capacity Term Rate Loan Housing Scenario Quintile Income Amount Demand Kinship Q2 11,245 20% 2,249 5 0% 134,944 134,944 Q1 6,612 15% 992 5 0% 59,509 59,509 Q2 11,245 15% 1,687 0.8 20% 14,850 14,850 Micro- finance Q1 6,612 15% 992 1.5 20% 15,315 15,315 near-poor 4,180 10% 418 5.0 20% 15,777 15,777 poor 3,135 10% 314 5.0 20% 11,833 11,833 Source: Authors’ calculations. 17 CBRE reports for Quarter 3, 2014. Housing Need, Demand and Affordability 19 Table 3.9 Housing Demand by Household Income in HCMC, 2014 (thousand, VND) Financial Income Monthly Payment Capacity Term Rate Loan Housing Scenario Quintile Income Amount Demand Kinship Q2 8,721 20% 1,744 5 0% 104,652 104,652 Q1 4,904 15% 736 5 0% 44,136 44,136 Q2 8,721 15% 1,308 1.1 20% 15,386 15,386 Micro- finance Q1 4,904 15% 736 2.1 20% 15,036 15,036 near-poor 7,315 6% 439 5.0 20% 16,566 16,566 poor 5,573 5% 279 5.0 20% 10,518 10,518 Source: Authors’ calculations. Households in Q1 and Q2 segments, without c. Supply of affordable units for the Q3 existing plot or homes, face the largest income segment. Continued support and affordability gap. This group includes migrant encouragement for developers to produce workers and newly-formed families. Home an adequate supply to satisfy the Q3 first- purchase for these segments would be difficult time home-owners with purchasing power considering both supply and demand sides. On in the VND 300 to 400 million range is the demand side, their limited ability to save critical, in Hanoi in particular, where supply for a down-payment and their low and volatile is still inadequate. income are key obstacles to access adequate d. High-growth cities and industrial zones. credit to purchase a starter home or self-build. Industrial zones and urban regions with a In addition, supply of low-priced incrementally high rate of growth, including the South expandable starter homes for this segment is also East and Red River Delta regions, should be limited and self-built solutions would depend the focus of housing policy given the high on the ability to access low-cost land, which is demand for housing. not in ready supply. Identifying, designing and producing a suitable, formal housing solution for this market is considered critical to prevent the need for informal urbanization. 3.3 Housing Policy Implications The key focus areas for housing policy based on the analysis of housing need, demand and affordability are as followed: a. Low income Q1 and Q2 income segments with no housing, such as migrants and newly-formed families, have the most urgent housing need given their limited savings, income and credit capacity to fully self-provide. These groups will need support for a diverse range of solutions, including rental, rent-to-own and core starter homes, particularly in urban areas. b. Low income Q1 and Q2 segments who need housing upgrades will need support to supplement their capacity to self-build through the use of housing microfinance and access to construction technical assistance. 20 Vietnam Affordable Housing 4 Chapter The Housing Supply and Delivery System 4.1 Housing Sector Context formal production when it introduced land use rights in 1994, leaving production to the Housing production can be segmented commercial sector and households themselves. into several sub-markets: state-driven, State-Owned Enterprises (SOEs) were the commercially-produced, and self-built housing dominant source of housing supply from 1994 development. Between 1975 and 1994, the to 1998, at which point supply from private state produced all formal housing, which developers overtook and has led in total volume only accounted for a minor fraction of total of new housing produced from 1998 onwards. production, an estimated 5 percent. Self-built Currently, it is estimated that the share of housing was the most common form of housing commercial and state-supported production supply, produced mostly informally by both accounts for approximately 20 to 25 percent households and emerging micro-developers, of total output. The majority of housing as commercial production was not legally production, or around 75 percent, is still in the permitted. The government stepped away from self-built or citizen-initiated sector. Figure 4.1 Changes in Housing Production over Time 0% 20% 40% 60% 80% 100% before 1994 state-driven before 1998 commercial (incl. SOEs) 2008 2014 self-build Source: Author’s illustration, based on anecdotal findings. Average annual housing production has increased Table 4.1 Average Annual Housing Production in by over 50 percent from 320,000 units per year Urban Areas in 2009 to 500,000 units per year in 2014. MoC relies on data from the General Statistics Office Housing Indicators for Urban 2009 2014 (GSO) to obtain information on housing stock, Housing Stocks (in MM M2) 476 689 average size and typology mix. Table 4.1 shows Per Capita M2 19.2 23.0 the estimated average annual production for Average No. Persons/ HH 3.66 3.64 urban housing between 2009 and 2014. Annual Average Home Size (M2) 70.3 83.7 housing production for urban areas has averaged Avg Annual Production (in MM M2) 23 35 at 500,000 units between 2009 and 2014, with Avg Annual Production (in units) ~320,000 ~ 500,000 the average home size increasing to 84 m2 per unit Source: GSO 2009 Census and 2014 Inter-Censal Survey. and 23 m2 per capita by 2014 (compared to 70 m2 Note that average production = (urban housing stocks 2014 – urban housing stocks 2009)/average home size. per unit and 19 m2 per capita in 2009). The Housing Supply and Delivery System 21 Housing stock in Vietnam is Table 4.2 Share of Housing of Each Typology relatively new, with 59 percent of housing being built since 2000. As Area Permanent Non- Temporary Simple Permanent per the 2014 Inter-Censal Survey, National Total 2009 46% 38% 8% 8% there has been a significant increase National Total 2014 47% 44% 6% 4% in new stock over the last five years as Urban Split 2014 42% 54% 2% 1% the newly built stock since 2000 has Rural Split 2014 49% 39% 8% 5% increased from 50 percent in 2009 to Source: GSO 2009 Census and 2014 Inter-Censal Survey 59 percent of overall stock in 2014. The remaining 41 percent of housing is divided as followed: 37 percent built and in use real estate agencies already carry out data since 1975, and only 4 percent of stock that was collection of developer-built supply and home built prior to 1975. price indices (HPIs). CBRE, Savills, Knight Frank, and Jones Lang LaSalle have experience The number of homes categorized as ‘temporary’ in collecting developer housing supply data and ‘simple’ have decreased significantly over the for Hanoi and HCMC. Introduced in 2009, last five years. The GSO classifies housing into four the Savills Property Price Index (SPPI) is typologies, permanent, non-permanent, temporary the first private home price index based on and simple, as shown in Table 4.2. Temporary and customer surveys, housing advertisements and simple homes have decreased significantly over the public auction contracts as a proxy to actual last five years from 16 percent to only 10 percent of transaction price. There have also been efforts total housing stock by 2014. Not surprisingly, rural by local governments. The Hanoi Department areas have far worse quality of housing, with only of Construction (DoC) has started to publish a 49 percent categorized as permanent. Table 4.3 home price movement report on the developer- describes the common housing typologies that are built apartment segment for ten main districts. found around Vietnam in more detail. Likewise, HCMC’s DoC is expected to publish its first home price movement report in 2015. Current housing related data, when available, Meanwhile, MoC is in the process of developing are somewhat fragmented and not fully reliable a system for collecting housing and real estate for public policy development and investment information, as outlined in the 2015 Housing decisions. In the private market, international Law and the Prime Minister’s Decision 134. Table 4.3 Example of Various Common Housing Typologies Permanent Construction Accounts for 42 percent of total urban housing stocks Tube house Narrow and long plot, with typical plot size of 4 x 25 meters. Typically 100 percent plot coverage and 3-4 floors, but can be 6 floors or more. Houses with good frontage typically feature a commercial ground floor. Alley house Tube house typology, but smaller and located in small alleys. Typically 100 percent plot coverage. Accounts for more than 50 percent of total permanent construction stocks. Apartment block Type 1: Older social or collective housing built between 1960s and mid-1980s with funding from the Soviet Union. Mostly exists in the North and much stock is in poor conditions. Typically ground floor, plus 7 stories (G+7). Type 2: New high quality blocks built by developers. Average G+18. Typical starting price of VND 12M/ m2. Starting unit size of 40 m2. Type 3: New resettlement housing and social housing. Typically G+5 to G+12. Average unit size of 40 m2. Villa Type 1: Older colonial style built during French era. Typically with garden or surrounding grounds. Refurbished for rental. Type 2: New luxury villas. Can be built by individuals and located within private compounds, or be part of large housing projects built by developers. 22 Vietnam Affordable Housing Table 4.3 Example of Various Common Housing Typologies (continued) Non-Permanent Construction Accounts for 54 percent of total urban housing stocks Alley house A precursor to the permanent construction alley house. Located within deeper areas of alleys. Average plot size of 3 x 20 meters. Poor construction quality. Typically G+1. Typically old and in need of upgrade. Small single- Average size of 3 x 20 meters. New informal buildings with single rooms. Typically for rent story and located in urban fringe areas. Temporary and Simple Construction Accounts for 3 percent of total urban housing stocks Rural old house Older rural houses located in urbanizing villages in urban fringe areas. Squatter house Precarious squatter housing located on undesirable and non-residential areas, such as canals, roadsides, unused industrial areas, or open-air market spaces. Source: Adapted from UN-Habitat 4.2 Commercial Housing Sector bubble from 2009-2012 has led to a stagnation of housing production, scarcity of liquidity, and 4.2.1 Overview of the Commercial Housing a sizable inventory of high-end housing stock Sector needing completion or uptake. Developers who have remained active benefited from particular After Doi Moi, Vietnam’s real estate sector competitive advantages, such as land reserves, as a whole, and the residential real estate strong product propositions, solid branding, in particular, has experienced three major and access to diverse capital sources. downturns. These downturns can be attributed to underlying market challenges of speculation, Housing developers are diverse in size and high dependency on FDI18, and shifts in housing target different market segments. Sixty real sector regulations. The most recent downturn estate enterprises are listed on Vietnam’s two has led to sector-wide consolidation, leaving the stock exchange platforms. As of March 2014, most financially strong and capable developers, these real estate actors account for VND 125 while weeding out weaker ones. The housing trillion19 or ~10 percent of the stock market’s Figure 4.2 Share of Foreign Direct Investment (FDI) in Real Estate FDI in real estate sector vs. FDI registered capital from 2004 to 2013 USDbn n FDI registered capital n FDI in real estate 80 71.7 70 60 50 40 30 23.6 23.1 21.3 19.9 21.6 20 15.6 14.0 12.0 6.8 5.0 7.6 6.8 10 4.5 1.9 0.3 0.4 1.1 0.9 1.0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: VPBS 18 FDI peaked in 2008 prior to most recent housing bubble as per Figure 4.2. 19 VPBS Real Estate Industry, March 2014. The Housing Supply and Delivery System 23 capitalization. As of year-end 2013, Vingroup is The housing bubble rebalanced market price the largest listed player, with market capitalization points to a more affordable level. Following and revenues at USD 3.5 billion and USD ~350 widespread speculation, real estate prices million, respectively. Of the developers not listed, reduced after the market downturn. The most some are large in scale while others are smaller, severe home price declines were experienced ranging from small household contract builders in the high-end and middle-market segments to medium-sized contractors. Aside from private until 2013. At the same time, the bubble has enterprises, many SOEs with land also participate shifted production away from the speculative in the sector. high-end market to the previously under- supplied affordable housing sector where The financial health of developers varies greatly. there was continued real demand from first- While some developers have no debt, others, time home-buyers, primarily in the Q3 and such as the prominent Vingroup, are highly Q4 income range. Tracking of real estate leveraged. Highly-leveraged developers can production in Hanoi and HCMC by CBRE experience a crisis in liquidity due to unexpected indicated that 41 percent of HCMC’s total events, such as delays in construction or in accumulated production since 1999 was in pre-sales efforts. These events can be caused by the affordable segment. In comparison, the macro-economic factors and bode challenges for affordable housing segment makes up 21 the sector, as a whole, when occurring at scale. percent of Hanoi’s production. Figure 4.3 Secondary Prices for HCMC and Hanoi HCMC, Seconday Prices Hanoi,, Seconday Prices $2.000 $2.000 Seconday price ( US$/m2) Seconday price ( US$/m2) $1.500 $1.500 $1.000 $1.000 $500 $500 $0 $0 2011 2012 2013 2014 2011 2012 2013 2014 High end Mid end Affordable High end Mid end Affordable Source: CBRE Vietnam reports, 2014. Figure 4.4 Total Accumulative Supply from 1999 to Quarter 3, 2014 (Both Completed & Under- Construction; Sold and Unsold*) HCMC hanoi 1% 2% luxury 18% High end 29% Mid end 29% 59% affordable 41% 21% 105.611 units 125.917units Source: CBRE Vietnam Reports, 2014. *CBRE definitions: (i) affordable is VND 50M/ m2. 24 Vietnam Affordable Housing Oversupply of high-end housing is decreasing. Table 4.4 Housing Months-in-Inventory In January 2013, the MoC began tracking the Unit Hanoi HCMC Others Vietnam volume of oversupply, primarily in the high- Total end segment. Assuming the same absorption Units Sold 1,954 1,134 3,733 6,821 rate achieved in 2014, the current Months-in- (Feb-Dec ‘14) Inventory ratio20 of housing in Vietnam is at Inventory 4,306 7,141 14,458 25,905 38 months, with the majority of the projects @ YE 2104 being in HCMC. Developers are addressing Inventory 22 63 39 38 affordability by shrinking unit size and In Months increasing production of 1-2 bedroom units. Comparing units sold before 2012 to units sold Source: MoC, 2014. after 2012, the average size of 1-bedroom units has decreased from 50 m2 to 48 m2 and average 260 to 620 million are within the affordability size of 2-bedroom units have decreased from range of Q3 and Q4 income segments, without 91 m2 to 75 m2. The number of 1-2 bedroom any government subsidy. As such, developers units has increased from 66 percent of total have recognized this market opportunity and production prior to 2012 to 72 percent of total have begun constructing units to respond to production after 2012. consumer demand, particularly in HCMC, where a wide range of products have become 4.2.2 The Cost Structure of Commercial available, some priced as low as VND 400 Housing Development million. Affordable housing produced by the commercial sector tends to be located 30 to Developers are building market housing for 45 minutes from the central business district, the Q3 and Q4 income segments with a 10-15 are within reasonable distance of community- percent profit margin outside of social housing based facilities such as shops, fitness centers, programs. As per the affordability analysis in and day care centers and rely on access by car Chapter 3, units in the price range of VND or motorcycle. Table 4.5 Affordability Analysis for Hanoi and HCMC (refer to Chapter 3) Income Mo. HH income Capacity To Pay1 Loan Amount2 Home Price3 Segments (VND MM) (VND MM) (VND MM) (VND MM) Hanoi Q3 16.1 4.0 290 362 Hanoi Q4 22.0 6.6 528 625 HCMC Q3 11.8 2.9 212 265 HCMC Q4 15.6 4.7 375 470 Assumptions: (1) Capacity to pay = 30% and 25% of HH income for Q4 and Q3, respectively; (2) Market rate of 10%; 20 / 15 year term for Q4 and Q3 respectively; (3) 20% down payment. Loan amount is calculated based on Constant Amortization Repayment method. Developers are able to provide affordable low income consumers. DevCo A is a listed homes for the Q3 and Q4 segments using company with a diversified and international different development and business models. capital base and puts emphasis on marketing. Table 4.6 outlines the cost structure of two DevCo B is self-funded and spends very little example cases, hereby referred to as DevCo on marketing. The contrast between these A and DevCo B. While DevCo B produces developers and their business models, when smaller units, both developers are able to coupled with consideration for their shared provide consumers with an acceptable price target segment and similar development cost, point of VND 12 million/m2, an affordable bodes well for the possible growth and diversity entry point for newly-formed households and of the affordable housing segment. 20 Months-in-Inventory is calculated based on inventory on hand divided by the average monthly consumption of sales. The Housing Supply and Delivery System 25 Table 4.6 Example of Cost Structure for Two Developers In VND ‘000 per m2 % of Sales Price w/o VAT Comparative Developer Cost Structure DevCo A Home DevCo BHome DevCo A Home DevCo BHome Construction Cost 5,500 6,413 50% 58% Land Cost (include land use right) 2,200 2,000 20% 18% Marketing / Sales Cost 990 190 9% 2% Project Management Cost 660 238 6% 2% Finance Cost 220 476 2% 4% Other Costs - 190 - 2% Total Cost of Goods Sold 9,570 9,506 87% 86% Profit before Tax 1,430 1,494 13% 14% Profit Tax (22%) 315 329 3% 3% Profit after Tax 1,115 1,165 Developer Profit Margin 10% 11% 10% 11% Sales Price w/out 10% VAT 11,000 11,000 Sales Price w/ VAT 12,100 12,100 Home Size 40 34 Home Price (VND ‘000) 484,000 411,400 Source: Interviews with developers. Many developers provide unique customer moving into the housing space with existing financing schemes to address consumer land reserves. Of the 34 projects approved challenges in accessing housing finance. DevCo by the MoC as of November 31, 2014, 50 A offers a promotional scheme where it pays percent of units were converted to affordable interest payments on behalf of buyers during from commercial housing. It remains to be the construction period. Meanwhile, DevCo seen how these players will behave upon the B implements a 50-month interest-free 30T Package’s termination, but the increased payment scheme where customers earn a 50- interest and investment in the affordable year lease upon payment completion. DevCo segment bodes well. B’s progressive scheme frees buyers from the complication of having to obtain a bank loan Yet, policy incentives for social housing and notably allows informal-income consumers development still can be strengthened to interest a pathway to home ownership. DevCo B’s a larger number of private developers. Incentives projects generally sell out within 3 months of are laid out in Decree 188 – Article 12: pre-sale without a marketing program due to its unique consumer financing model and low a. Exemption from land use right fees. price point. DevCo B is confident to take the b. A preferential VAT rate of 5 percent, credit risk because in the event of a buyer’s reduced from the normal rate of 10 percent. default, the developer is able to repossess c. Corporate Income Tax rate of 10 percent, and resell quickly given the high demand for reduced from a normal rate of 20 percent. properties at such a low price-point. d. Trunk infrastructure hookups outside the perimeter of the project are reimbursed by 4.2.3 Policy Challenges and Opportunities in the local government budget. the Commercial Housing Sector The incentives reflect international practices The 30T Package has been successful in bringing around supply-side government support, but existing developers down market and facilitating challenges lie in execution. Reimbursement the emergence of new entrants. Of the list of the of infrastructure development can be slow MoC’s 100 approved development projects and burdensome, particularly when local eligible for 30T Package funding, a significant governments lack fiscal and technical capacity. portion are new entrants, contractors moving Procedures associated with verification of up market or large corporations in other sectors consumer eligibility for social housing benefits 26 Vietnam Affordable Housing are complex, creating a hurdle for developers up post-housing bubble, leading to fierce to offload units. In addition, incentives are competition between incumbent and new accompanied by caps. Profit margins for developers. Such competition might bode well social housing projects cannot exceed 10 for consumer choice and market development percent, so that some private developers and if properly directed to meet actual demand, and SOEs perceive participation in social housing if not, the risk of another future bubble exists. development as a social obligation and not necessarily an economically attractive pursuit. Access to land in major cities remains a major These bottlenecks may deter participation of a challenge for commercial production of larger number of developers. affordable housing. Urban land, particularly in large cities, is scarce, expensive and difficult to The housing market crash has filtered out less assemble. The high density and high number competent developers and led to mergers and of small plots in city centers have made land acquisitions that consolidate and strengthen access a challenge. A handful of prominent the sector. Many developers have engaged in developers have land reserves that have been mergers and acquisitions to strengthen capital assembled ahead of the surge in land prices. base and operations. Yet more went bankrupt However, even those land reserves are running and exited the sector entirely. Remaining out, requiring developers to reassess their developers have proven capacity to weather long-term growth strategy to adapt to scarce economic downturns, scale in operations land resources. Policy efforts to introduce where necessary, and establish long-term inclusionary zoning and allocate land for social branding and product strategies that prioritize housing development have not been effective sector growth over deal-based profits. and require strengthening of compliance management and procedures (see Chapter There is new confidence in the commercial 6). However, recent plans for infrastructure housing market. The SBV policy in addressing development through metro lines, urban banks’ bad debt through the creation of Vietnam upgrading, and redevelopment create a positive Asset Management Company (VAMCO) and backdrop for new development activities. As banks consolidation has boosted confidence cities increase infrastructure development in the market and re-activated credit flow. and urban planning projects, previously Many commercial banks have once again undesirable locations close to city centers now started lending to developers. Yet many more can be released, opening up new residential are strategically shifting to consumer lending, development opportunities. thereby creating a competitive environment with more mortgage options for buyers. Changes and uncertainty in development Loosening of foreign ownership regulations regulations can introduce complications for also helps to boost investor and developer developers. Developers must balance an confidence and is expected to increase the flow extensive set of regulatory measures and of FDI into the housing market, particularly documents required at both the central and for condominiums. local government levels. Urban planning guidelines can have impact on the costs of Yet, the commercial housing market is still site infrastructure, internal roads and green vulnerable to external shocks and speculative spaces. Aside from administrative procedures, bubbles. The supply boom of the early 2010s, developers must also account for periodic its resulting backlog, and this renewed surge changes in regulations and resulting cost in housing production are leading toward implications. Though necessary from a another over-extension of resources. The governance standpoint, the abundance of housing sector has yet to absorb ~25,000 units regulations will be able to better support of pre-bubble housing. Stimulated by the 30T sustainable development and increased Package, 65,000 additional affordable units are affordability for end users if streamlined with expected to come into the market over the next more consistency, transparency and ease of two years. The market shows signs of heating understanding and use. The Housing Supply and Delivery System 27 In the construction sector, variability in makes up approximately 15 percent of Vietnam’s the quality of construction still needs to be housing stock, or 3.3 million units nation-wide. improved. There is a new government focus on The rate of rental housing is higher in urban areas developing the construction sector to reduce (up to 26 percent of households in HCMC), the prevalence of faulty and sub-standard among migrants (64 percent of migrants in construction work and to enhance the skills HCMC and Hanoi live in rental housing) and of laborers as a means to support economic among lower-income households21. As Vietnam development. Decision 134 of January 2015 becomes more urban and as the youth population on Restructuring the Construction Sector becomes more mobile in search of education and focuses on these issues, as well as the use of a work, demand for rental housing is also expected Public-Private Partnerships (PPP) to support to increase, particularly in Vietnam’s cities and housing development. To support growth and industrial centers. Assuming a 25 percent share improved quality, the construction sector will of rental out of total new annual overall demand need to apply more stringent enforcement (refer to Chapter 3), rental would account of minimum standards and professional for 95,00022 units per year. To reduce the workforce training. Meanwhile, households qualitative deficit by 2030, an estimated 80,000 with need for self-built housing largely turn of improved or rebuilt rental units would need to small contractors to carry out construction. to be addressed, and if the GoV were to attempt This sector remains largely fragmented and to reduce the deficit more quickly, by 2020, then informal, yet employs a significant portion of roughly 250,000 units per annum would need to the workforce. be addressed. Finally, to ensure high resale potential and value Rental housing demand is concentrated among in the long term, creation and management of students, newly-formed families, migrant Home-Owners’ Associations (HOA) also must workers, and low income families. Rental evolve to meet international standards. Living housing is an important option for newly- in large-scale development projects is still a formed and low income households, students, very new phenomenon for Vietnamese home- and migrant workers. This is particularly true owners, and managing the common areas is in large cities, like Hanoi and HCMC, where equally new to the local developers. Currently, more than 70 percent of migrants are between most developers opt to conduct ongoing the ages of 15 and 30, compared to about 40 management and operations of condominiums percent in the same age group among city and price the HOA services at a percentage of residents. The proportion of housing ownership the sales price (e.g. around 2 percent), payable for migrants in these cities was only 8.7 percent at the time of home transfer. There still lacks in 2010. Over 90 percent of migrants live in any guidance or role models in the market on rented housing, cramped shared quarters with best practice in management of high-rise and relatives, temporary shelters on construction condominium blocks and how an HOA can be sites, or workshops or shops. Rental housing is effectively operated. important for socio-economic growth because it enables worker mobility and options for those 4.3 Rental Housing Sector who are unable to access mortgages or do not want to buy housing. Demand for rental housing is high in urban areas and increasing. According to the 2009 Census Industrial zone workers contribute to a large of Population and Housing, rental housing share of rental housing demand. In Quarter 21 Based on the 2009 Census and the 2009 Urban Poverty Study conducted in Hanoi and Ho Chi Minh City. 22 The number of urban households is estimated to increase by approximately 2.2 million from 9.1 million in 2015 to 11.3 million in 2020 driven by urban population growth rate of 3.03% per annum and a decline in the urban household size of 1.36% per annum, based on recent trends in both indicators. If 25% are estimated as rental housing, this results in an annual need of around 95,000 (of 374,000) units of rental housing demanded. 28 Vietnam Affordable Housing 3 of 2014, out of the 15.8 million people who Existing affordable rental housing in Vietnam are employed in urban areas, 3.05 million is mainly informal and substandard. There is belong to the manufacturing sector, with 2.25 limited information on the 15 percent of the million people working in 295 industrial parks total housing stock that is rental. Empirical and 15 economic zones across the country. studies indicate that the commercial rental Among industrial workers, roughly 40 market is still very small, mainly catering to percent are between the ages of 15 and 29 and high-end consumers. There are also limited approximately 78 percent of people, rent their public stocks of rental housing for government dwellings. It is estimated that formal supply is workers, military officials and students, or only sufficient to respond to 10 percent of this of rental worker housing provided by larger rental housing demand, indicating that most companies in industrial areas. Much of the people end up renting informally, and there is rental housing in Vietnam is made up of substantial unmet need in industrial zones for single rooms provided by private landlords adequate rental and starter home options. in dense and often-informal neighborhoods Box 4.1 Industrial Zones in Vietnam Vietnam has had a long-standing goal to transform from an under-developed agricultural country into an industrialized nation. Following the success of industrial parks in Taiwan, Korea and China, Vietnam also adopted this policy to attract foreign investment into export-oriented manufacturing sectors in the late 1990s. This policy was used primarily to accelerate economic growth and shift labor into higher-productivity sectors and has been largely successful. By 2011, industrial manufacturing was the most popular sector for FDI in terms of both registered capital and projects, accounting for 7,987 or 58.5 percent of projects and USD 93.05 trillion or 47 percent of total FDI. By 2014, Vietnam had developed around 295 industrial parks and 15 economic zones around the country. These industrial zones have been primarily concentrated in peri-urban areas close to Ho Chi Minh City and Hanoi and have prompted large volumes of temporary migrants. There are now an estimated 2.25 million people living and working in industrial zones, of which 75 percent are migrants and 40 percent are between the ages of 15 and 29. Initially these zones were planned exclusively for industry and did not provide space for social services or housing, even though they have attracted a high level of migrants. New regulations on industrial zones now require housing to be incorporated into site plans and there have been 63 social housing projects completed to support industrial workers, primarily dormitories, and several companies have also invested housing for employees. However, creating a healthy environment and ensuring that there is adequate accommodation for workers still remains a major challenge for Vietnam, which will be critical to support the success of its industrialization policy. Figure 4.5 Distribution of Industrial Companies across Provinces Provinces N % Hanoi 161 16.1 Vinh Phuc 13 1.3 Bac Ninh 16 1.6 Hai Phong 71 7.1 Da Nang 25 2.5 Binh Duong 264 26.4 Dong Nai 150 15 Ba Ria Vung Tau 20 2 HCMC 281 28.1 Total 1001 100 Source: UNIDO Vietnam Industrial Investment Report, based on market research The Housing Supply and Delivery System 29 and rented by youths and migrant workers. to healthcare, and income. Only 64.6 percent This rental housing is exchanged informally, of non-registered children between 6 and 17 where contracts are usually verbal rather than attend public schools, compared to 82.4 percent written23. Units are often small24, in poor of residents. Migrants are half as likely as conditions, and lack basic amenities, such as residents to visit a doctor, with visitation rates at clean water, electricity, and sanitation25. In 23.4 percent compared to 11.4 percent. Finally, addition, units are often overcrowded, and workers without registration are paid 9 percent tenants are insecure and unable to prove their less on average, even though they work 10 more residency to obtain Ho Khau registration to hours than registered residents per week and access other welfare benefits when necessary. are far more likely to be working than residents, Furthermore, landlord-tenant laws are basic with 85 percent versus 59 percent employment and underdeveloped in nature and cannot be rates respectively. applied to the informal rental segment. Despite rising demand and need, the supply of The low level of formality faced by many formal affordable rental housing appears to be tenants has a significant impact on livelihood limited. There is little data on rental housing opportunities and may magnify vulnerability supply, though evident strongly suggests a to poverty. The Ho Khau system was introduced majority of rental housing is linked to citizen- in urban areas in 1955 and is tied to place of initiated informal housing. Of the estimated residence. In the past, particularly before Doi 3.3 million housing units constructed between Moi, it was strictly enforced and linked to the 1999 and 200927, around 60 percent or some 1.6 ration system. Post 1990, it is still required for million units were small, single-story informal administrative procedures, including buying housing units mainly located on urban fringes. land, building houses, registering motor vehicles, The majority of this informal construction was and receiving public welfare benefits. Hence, residential and almost all are owner-occupied. the lack of written housing rental contracts Meanwhile, an unknown but sizeable minority means that migrants cannot obtain permanent of this construction was used for single room registration status and have to remain either rental mostly to migrant workers. The supply a temporary or unregistered resident (KT3 or of formal rental housing in Vietnam is limited KT4 status) without full access to public services by several issues: (i) the economics of the rental within their district of residence or registration. market are not attractive for developers due Unregistered migrants make up approximately to the low payment capacity of low income 20 percent of the population of larger cities26, households (