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Vietnam central bank to give $1.4 bln loans to revive property market

Vietnam's central bank plans to inject VND30 trillion (US$1.4 billion) into the banking system to offer soft loans to home buyers in an attempt to revive the struggling property market and resolve bad debts.

Banks will provide loans at 6 percent a year to low-income home buyers, state employees and the military for at least 10 years and to low-price property developers for five years, the central bank said in a draft circular late on Wednesday. The plan is expected to take effect from April 15.

Vietnam's property market has come to a standstill in the past two years after a long period of strong growth which was fueled by a lending spree by local banks. Robust demand encouraged many developers to invest in higher-end housing.

An economic slowdown and soaring inflation exacerbated banks' problems with non-performing loans. Banks have dramatically cut lending, impacting property sales across the country and stalling many real estate projects.

The decreased demand has also affected unemployment, with many jobs lost in construction, an industry accounting for 3.3 million people, or 6.4 percent of Vietnam's labor force, according to parliament's economic committee.

The soft loans will be reserved for low-price property projects, the central bank said. The government will give developers permission to turn their commercial housing projects into social housing from next month until the end of 2014.

The State Bank of Vietnam will inject refinancing capital into five state-run and state-controlled banks, including Agribank, BIDV, Vietcombank, VietinBank and Mekong Housing Bank.

Loan rates in the local currency now range from 9 percent to 16 percent, according to the central bank's reports, while small businesses have said they may be charged at 18 percent.

Total real estate-related loans amounted to 1,000 trillion dong ($47.8 billion) by the end of last August, or 57 percent of the banking system's lending, the Ministry of Construction has said.

An association of real estate developers in Ho Chi Minh City had been urging state support for the market and asked the government and the central bank to instruct banks to tax deposits of more than 500 million dong ($24,000) to invest in the local economy, according to state media. That was widely interpreted as a move to spend on real estate instead.

The news had only a limited impact on Vietnam's benchmark Ho Chi Minh Stock exchange on Thursday, which was flat at 0420 GMT, with traders in a cautious mood.

Most property stocks, including Vingroup, the country's biggest listed developer, were unchanged, but shares in Thu Duc Housing Development Corp climbed 6.5 percent and shares of Song Da Urban & Industrial Zone Investment and Development Co gained 1 percent.

"The move will help directly reduce inventories in the domestic property market and it will also give a boost to the stock markets," said Quach Manh Hao of Military Bank Securities. ($1=20,900 dong).

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