Real estate is recovering from its lows.

In its report on the real estate market, SSI Securities Company (SSI Research) assessed that the market in the first months of the year had almost reached its lowest level in recent years, with demand plummeting and transaction volume decreasing by up to 50% compared to the same period last year.

However, according to SSI Research, there are now signs that the real estate market has bottomed out and is showing signs of recovery as interest rates have cooled down sooner than expected.

Start the construction process from now on to Figure 1 — The real estate market has bottomed out and is showing signs of recovery as interest rates have cooled down sooner than expected. (Photo: MI)

Specifically, at the beginning of the year, SSI Research predicted that interest rates could peak in mid-2023 and then gradually decline. However, reality shows that interest rates have cooled down earlier than expected, starting from mid-March. Although this has not yet significantly impacted lending rates, the decrease in interest rates has helped stabilize market sentiment on this issue.

SSI Research also noted that in the first four months of the year, many solutions to support the real estate market were discussed and issued. Although these measures may need time to show clearer results, they partly reflect the government 's strong determination to address the bottlenecks in the real estate sector.

“The real estate market has shown more positive signs, mainly from developers and brokers. Regarding demand, although the average mortgage interest rate has decreased to around 13.5% per year in April from its peak of approximately 15% per year in January, this is still a high level and needs to be reduced further to stimulate demand more strongly,” SSI Research commented.

With current mortgage interest rates hovering around 13%, SSI Research believes that a further reduction of 150 to 200 basis points may be needed to stimulate demand in the real estate market, and this is very likely to happen in 2024. At that time, liquidity will improve as the government's measures to alleviate difficulties in the real estate and corporate bond markets are implemented.

With interest rates falling sooner than expected and receiving more active government support, SSI Research believes the worst may be over for the real estate sector. Although the real estate market is improving, certain obstacles may still remain.

In particular, lending interest rates still need to be reduced further to stimulate demand to recover. Support policies also need time to truly impact the market, especially in removing bottlenecks in the project licensing process.

In addition, SSI Research believes that the risk of default can still occur for developers who are unable to negotiate with bondholders to extend payment terms or balance cash flow to repay debt.

Therefore, developers who are less affected by bond issues, possess good land reserves, and have strong development and sales capabilities are the ones most likely to weather the headwinds ahead and benefit from supportive policies.

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