High interest rates cast shadow over real estate

Ngo Quang Phuc, CEO of Ho Chi Minh City-based developer Phu Dong Group, said, "Along with overly complex legal procedures, the high cost of lending remains a major concern to both real estate firms and house buyers, and it's having an effect on those with a pressing demand for accommodation." Lending rates currently stand at between 13-14 per cent.

The State Bank of Vietnam (SBV) reduced the regulatory interest rate for the third time in three months on May 25 to boost the economy with the expectation of enticing money back into the real estate market.

"However, we will need to wait a little bit longer to see any real effect from this rate reduction decision," Phuc said.

Similarly, Nguyen Ba Sang, chairman of An Gia Real Estate Investment and Development Corporation, believes that while the lending rate for other industries might be reduced, the rate applied to the real estate sector remains quite high.

“Even if banks agree to lend more easily, many firms would still be unable to borrow as their projects face legal bottlenecks,” said Sang.

Sang added that according to bank executives he had spoken to, "It might take between nine months to a year for the lending rate to actually go down as expected."

After the SBV's move, the lending rate at several banks in late May was revised downward, with MSB fetching the lowest rate at 4.99 per cent. However, MSB's rate is fixed for just the first three months of a 24-month loan or longer, with the 13-14 per cent rate applied from the fourth month onwards.

Some encouraging results were reported following the SBV’s rate reduction, but despite some improvements, the current level of liquidity is a fraction of what was available several years ago. Experts at the Vietnam Association of Realtors suggested that only after the lending rate falls below 10 per cent will the real estate market recover.

Nguyen Quoc Anh, deputy CEO at batdongsan.com.vn, noted that recent policy changes would have a strong impact on the property market but with positive effects often taking two quarters to materialise.

“Signs of a market U-turn shouldn't be expected until the fourth quarter of this year, or possibly later in mid-2024,” said Anh.

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