Rising interest rates: A test for the real estate market.

The Vietnam Real Estate Brokers Association believes that current interest rates are under significant pressure. In this context, the real estate market, a sector heavily reliant on credit, is facing a major test for its recovery and development.

The return of inflationary pressures, coupled with the cautious monetary policy stance of major central banks worldwide, has narrowed the room for maintaining low interest rates. (Photo: PV)

Real estate is often the sector that benefits most from fluctuations in cash flow. After a long period of remaining low, savings interest rates at many banks have been quietly rising for short-term maturities, leading to an upward trend in lending rates. Although the State Bank of Vietnam continues to maintain a liquidity support policy and has not signaled a tightening of monetary policy, as it has not restarted the money-absorbing channel through treasury bills since June, interest rates are currently under considerable pressure.

In reality, when interest rates rise sharply, the first and most obvious impact is a decrease in market liquidity. Homebuyers, especially those using borrowed capital, will reconsider their financial plans. Meanwhile, real estate investors are more cautious about expanding their portfolios, as the expected returns may not offset the increased cost of capital.

Simultaneously, project development companies face a double risk: rising financing costs while demand declines, leading to slower cash flow and a shrinking supply of new products. As supply decreases, transactions slow down, making it difficult for prices to maintain the upward momentum seen in the previous period.

The real estate market is a sector heavily dependent on credit policies. (Photo: PV)

Due to its heavy reliance on debt, real estate is the investment channel most directly and profoundly affected by interest rate fluctuations. In the past, the Vietnamese market experienced a sharp downturn from 2011-2013, when lending interest rates exceeded 18%-20% per year. Many businesses and investors had to sell off assets to cut losses, causing a prolonged market freeze and a 30-40% drop in property prices in many areas, even in central locations.

Part of the reason stems from an investment mindset that relies on short-term loans, while real estate projects and assets have long investment cycles. When the cost of capital suddenly increases, cash flow is disrupted, and the risk of illiquidity is almost unavoidable.

Pressure also comes from preferential home loan rates. However, the preferential period is only temporary. When interest rates become floating, if the general interest rate level rises, the pressure to repay the debt will increase sharply. Many customers find themselves in a situation where they haven't repaid any principal but the interest has doubled. When market liquidity is low, reselling the property to cut losses becomes difficult, and the risk of bad debt could return to the credit system.

Real estate businesses face a double risk when interest rates rise. On the one hand, they have to bear higher financing costs for project development loans. On the other hand, purchasing power in the market declines as people find it difficult to access loans to buy houses.

Meanwhile, the corporate bond issuance channel has not yet fully recovered. New issuances remain cautious, while the volume of maturing bonds remains high, forcing many businesses to manage their cash flow by selling off land, delaying construction schedules, or negotiating with contractors and banks to extend payment terms.

Not only does it impact ongoing projects, but persistently high interest rates also weaken the ability to expand land reserves and initiate new projects. As a result, the supply of housing is at risk of a significant decline in the medium term.

Another consequence is the indirect impact on public investment and infrastructure costs. Rising prices of raw materials, labor, and land acquisition slow down the progress of many key transportation projects. This directly affects price appreciation expectations in areas previously predicted to "benefit from infrastructure," putting many secondary investors in a difficult position.

Despite facing numerous challenges, the long-term outlook for Vietnam's real estate market remains positive, thanks to a strong foundation of genuine housing demand and urbanization. As the economy develops, segments such as residential, industrial, office, and retail properties continue to maintain stable demand.

The Vietnam Real Estate Brokers Association suggests that homebuyers should take advantage of the current low interest rates and recovering supply. Accordingly, the use of borrowed capital should be controlled at a safe level, not exceeding 50% of the property value, to avoid risks if interest rates reverse. Buyers should also prioritize projects from reputable developers with strong financial capacity, legal compliance, and construction progress, especially for future housing projects.

Source: https://baoquangninh.vn/lai-suat-tang-phep-thu-cho-thi-truong-bat-dong-san-3384151.html