Home loan interest rates decrease, will the real estate market recover?

In early July, mortgage interest rates decreased significantly, with many banks offering rates below 10% per year. For example, Woori Bank applied an interest rate of 7.8% per year; Shinhan Bank - 7.99% per year for the first 6 months and 10.5% per year for the remaining 54 months. TPBank applied an 8% rate for homebuyers for the first 6 months, followed by 12% per year for the next 6 months, and from the 13th month onwards, the interest rate will be floating according to market conditions, around 13.5% per year.

Several other banks also offer preferential loan rates, such as: HDBank (8.2%/year), VIB (8.5%/year), Eximbank (8.5%/year), SeABank (9.29%/year), UOB (9.49%/year), and Sacombank (9.5%/year).

In addition, the Big 4 banks, including Vietcombank, BIDV, Vietinbank, and Agribank, are also offering very favorable loan terms.

Will lower mortgage interest rates lead to a recovery in the real estate market? - 1 — Mortgage interest rates have fallen, but the market needs several factors to recover.

Specifically, BIDV offers home loan interest rates of 7.8%/year; Agribank 8%/year; Vietinbank 8.2%/year; and Vietcombank 9.5%/year.

However, interest rates below 10% only apply for 3-6 months, or a maximum of 1 year. After the promotional period, most banks charge a floating interest rate, commonly ranging from 12-13.5%.

Regarding this interest rate, experts believe that although mortgage interest rates have shown signs of cooling down, there will not be a significant decrease in the last six months of the year. The preferential rate is only applicable for a short period, so it will not have much impact on buyer sentiment.

Accordingly, currently, floating interest rates at some commercial banks remain commonly at 12-13.5%. Some banks even offer rates as high as 14.2% after the promotional period ends. This interest rate level is expected to persist and is unlikely to fall below 10%.

Experts at Batdongsan.com.vn also believe that for the market to return to a period of "cheap money," many factors will need to be at play. Therefore, a sharp drop in interest rates is unlikely in the short term.

In 2024, interest rates may continue to fall, but it is unlikely they will drop below 10%. Therefore, expecting a short-term market recovery is difficult due to the current unattractive interest rates.

According to the Vietnam Real Estate Brokers Association, there are signs of money flowing back into the market, with some customers accessing new loans at interest rates of 10-11%. However, the real estate market will only react when the average interest rate falls below 10%, as 10% is a figure that investors can afford to borrow at.

However, interest rates are only one of the factors affecting the real estate market. The current interest rate reduction only benefits individuals who already have loans with variable interest rates and is not yet attractive to those who need to borrow.

Meanwhile, the real estate market still has to wait for liquidity to recover, a factor that will only improve when investors' confidence in the market returns and the economy's fundamentals return to a healthy state.

According to Dr. Nguyen Van Dinh, Chairman of the Vietnam Association of Real Estate Brokers (VARS), the reduction in interest rates is good news for the market, but it does not completely determine whether the real estate market will recover.

“ The crucial issue now is that many projects still haven't resolved their legal issues, and there isn't much quality supply on the market. Therefore, even with reduced interest rates and money flowing into the market, there are no goods available for purchase. In my opinion, the root cause for reviving the market still requires thoroughly addressing legal issues. This is the key issue for the sustainable and healthy development of the real estate market, ” Mr. Dinh said.

How much lower do homebuyers hope interest rates will drop?

Recently, Batdongsan.com.vn conducted a survey among potential homebuyers regarding whether they need to use financial leverage.

According to the survey, over 73% of respondents indicated a need for bank loans to purchase a home, while only 27% stated they would not borrow. Among those needing home loans, 41% required loans for less than 30% of the property value, and 30% needed loans for 30-70% of the home's value.

According to the same study, when discussing expectations for mortgage interest rates in 2023-2024, approximately 44% of respondents believed that a mortgage interest rate below 8% was reasonable for them to manage their finances and expected interest rates to fall to this level in 2024.

Additionally, 33% of homebuyers are willing to take out a loan if the interest rate ranges from 8-10%, while only about 14% agree to an interest rate of 10-13%.

According to Mr. Le Bao Long, Director of Strategy at Batdongsan.com.vn, the reason many homebuyers are hesitant to use financial leverage is due to concerns about economic difficulties, unstable jobs, and precarious incomes, which put them under pressure and make it difficult to afford loan interest.

“ Most families with incomes below 40 million VND/month can only afford a maximum of 20 million VND per month for mortgage payments. Those with incomes above 40 million VND/month can only afford a fixed monthly mortgage payment of no more than 30 million VND. For low-income customers, earning less than 20 million VND/month, this figure is around 8-10 million VND at most ,” Mr. Long shared.

Historically, interest rates and house prices have been two major factors influencing home buying decisions. This is also a problem that prevents many people with genuine housing needs but requiring financial leverage from making a decision, as deposit interest rates remain high compared to pre-COVID-19 levels.

According to a survey by Batdongsan.com.vn, 72% of homebuyers believe that current real estate prices are still high or very high, exceeding the affordability of most workers in the market today. 75% of those surveyed also stated that current lending interest rates are high or excessively high, discouraging many from borrowing.

In addition, complicated loan procedures also prevent many people from accessing capital through banks.

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