For the real estate market to recover, what should the lending interest rate be?

High demand for home loans

Recently, Batdongsan.com.vn conducted a survey on the group of people who want to buy a house about whether they need to use financial leverage. Through the survey, more than 73% of people said they need to borrow money from the bank to buy a house and only 27% did not borrow. Of the customers who need to borrow money to buy a house, up to 41% need to borrow less than 30% of the product value, 30% have to borrow from 30-70% of the house value.

According to the results of this study, when discussing the expectation of home loan interest rates in 2023-2024, about 44% of respondents said that a home loan interest rate below 8% is reasonable for them to manage their finances and expect interest rates to decrease to this level in 2024. In addition, 33% of home buyers accept to borrow if the loan interest rate fluctuates from 8-10%, and only about 14% agree with an interest rate of 10-13%.

To revive the real estate market, what should the lending rate be? Figure 1 — Demand for home loans remains high.

According to Mr. Le Bao Long, Strategy Director of Batdongsan.com.vn, the reason why many home buyers do not dare to boldly use financial leverage is because they are worried about economic difficulties, unstable jobs, and uncertain incomes, causing them to feel pressured and unable to afford the loan interest.

“Most families with incomes under 40 million VND/month can only spend a maximum of 20 million VND or less to pay for buying real estate every month. Those with incomes over 40 million VND/month can only accept a monthly fixed mortgage payment cost of no more than 30 million VND. For low-income customers, under 20 million VND/month, this figure falls around 8-10 million VND at most,” Mr. Long shared.

Up to now, interest rates and house prices have been two factors that greatly influence the decision to buy a house. This is also the problem that many people with real housing needs but need to use financial leverage have not been able to decide, because the mobilization interest rate is still at a high level compared to the time before the COVID-19 pandemic.

Also through the survey of Batdongsan.com.vn shows that 72% of home buyers assess that current real estate prices are still at a high and very high level, beyond the ability to pay of most workers in the current market. 75% of those surveyed also stated that current lending interest rates are also at a high and too high level, making many people not dare to borrow. In addition, complicated lending procedures also make many people unable or not dare to approach the capital mobilization channel from banks.

Interest rates will hardly fall sharply

Up to now, the operating interest rate has been adjusted down 4 times by the State Bank of Vietnam (SBV). Not stopping there, in Resolution 97/NQ-CP dated July 8, 2023 of the Government recently, it also emphasized that the SBV will continue to implement synchronous and drastic solutions to reduce the interest rate level, especially reducing lending interest rates, striving to reduce at least about 1.5 - 2%.

Thanks to this drastic direction, it is expected that the average 12-month deposit interest rate will likely decrease to 6 - 6.5%/year by the end of 2023, as the SBV still has room to reduce operating interest rates.

However, experts say that although the State Bank has taken action to cool down interest rates, the interest rate for buying and selling will not decrease sharply in the last 6 months of the year. Accordingly, at present, floating interest rates at some commercial banks are still commonly at 12% - 13.5%. Some banks even have interest rates at 14.2% after the preferential period ends. This interest rate is expected to last longer and is unlikely to decrease further to below 10%.

To revive the real estate market, what should the lending rate be? Figure 2 — The real estate market is still waiting for a positive impact from bank interest rates.

Experts from Batdongsan.com.vn also commented that to return to the period of "cheap money", the market will need many factors to influence. Therefore, in the short term, it will be difficult to expect a sharp decrease in interest rates. In 2024, interest rates may continue to decrease but will hardly be lower than 10%. Therefore, expecting the market to recover in the short term is difficult to achieve because interest rates are not really attractive.

According to the Vietnam Real Estate Brokers Association, cash flow is showing signs of returning to the market, with a customer having access to a new loan with an interest rate of 10-11%. However, the real estate market will only react when the average interest rate drops below 10% because 10% is the number that investors can afford to borrow.

However, interest rates are only one of the factors affecting the real estate market. The current interest rate reduction only supports individuals who have loans with floating interest rates, but does not attract those who are in need of loans. Meanwhile, the real estate market still has to wait for liquidity to recover, which will only improve when investors' confidence in the market returns and the economy's internal state returns to a good state.

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