How will policy rates impact Vietnam’ real estate market?

Although the scale of policy rates reduction is small, it will have a major influence on assisting real estate enterprises in gaining access to lower-cost finance sources.

>> A new view of policy rates

The State Bank of Vietnam (SBV) has urged financial institutions to actively decrease lending rates to help economic revival since March 6. Over the 6- to 12-month period, the State-owned commercial banks promised to cut its lending rate by 0.2% each year, while joint stock commercial banks agreed to reduce their rates by 0.5% per year.

The SBV has agreed to decrease policy rates by 1% and short-term loan rates by 0.5% for priority sectors, including real estate, beginning March 15. The rediscount interest rate fell from 4% per year to 3.5% per year, while the overnight lending interest rate in interbank electronic payment and lending interest rate to cover capital shortage in SBV clearing payment fell from 7.0% per year to 6.0% per year. Simultaneously, short-term financing interest rates for key industries fell from 5.5% to 5% per year.

These actions are required in light of rising inflation and the Fed's worldwide policy of maintaining or raising interest rates. Furthermore, the government has asked the SBV to closely monitor and categorize real estate projects, as well as take actions such as rescheduling principal and interest payments and restructuring debt groupings. Operational expenses must also be reduced in order to reduce loan rates for the economy, which includes homebuyers and real estate developments.

According to Ms. Tran Thi Khanh Hien, Director of VNDIRECT's Analysis Department, the SBV's choice to lower policy rates fast at this moment is a rather sensible and flexible move. Although the scale is small, it will have a major influence on assisting real estate enterprises in gaining access to lower-cost finance sources.

>> A boost to Vietnam’s luxury resort real estate

Dr. Vu Dinh Anh, an economist, said the real estate sector would account for more than 20% of total credit in the economy by the end of 2022. That is, for every five dong of bank capital, one dong is allocated to real estate. Around 70% of the loans for real estate comes from banks. As a result, financing for this industry is significantly influenced by interest rates.

The bank's deposit interest rate reduction provides a timely answer, since if the deposit interest rate remains at 9% to 10% per year, individuals would prioritize allocating idle cash to deposits and saves without losing income. This makes it difficult for businesses to raise financing for expansion and growth.

Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association, concurs that house loan interest rates at private joint-stock commercial banks are projected to fall to 10-11% per year in the near future. Fair interest rates, along with measures to eliminate roadblocks in legal procedures, will generate fresh supply, allowing the market to thrive once again.