Homebuyers hesitant to borrow despite lower mortgage interest rates

He and his wife have been eyeing a 54-square-meter two-bedroom apartment built by a foreign developer in the city’s eastern area.

But the unit, launched early last month, was priced much higher than the couple expected and they would need to borrow nearly VND3 billion to afford it.

Even with 0% interest for the first two years and a 10% discount on the price, the payment will be a significant burden on the family with two children.

Thu Hoai of HCMC’s Thu Duc City and her husband have similarly been searching for a house with a VND2-billion budget.

The average mortgage interest rate is unusually low at around 8%, but a house with enough space for her family of four costs at least VND4 billion, she said.

The couple have to pay nearly VND22 million a month, or half of their income, if they obtain a 20-year mortgage at that rate.

Given the economic scenario and the strain on their budget, they decided to postpone their purchase.

Premium apartment buildings in western Hanoi, November 2024. Photo by VnExpress/Giang Huy

Tu Tien Phat, CEO of private lender Asia Commercial Bank, said his bank’s fixed interest rate on mortgages is currently 8-8.5%, much lower than in recent years.

But its outstanding home loans have only grown by 10% in the first nine months of 2024, slower than the rate seen a year ago, he said.

Can Van Luc, chief economist at state-owned lender BIDV, said though mortgage interest rates have fallen by 2-3 percentage points from a year ago, "People are opting to delay (home purchases) and wait for more reasonably priced products to enter the market."

Data from the State Bank of Vietnam shows that outstanding mortgages in the banking sector are worth VND3.15 quadrillion, a 4.6% increase for the year, a low rate that indicates subdued demand, according to the central bank.

The sales director at a real estate agency in Hanoi said the housing market is usually most active during the fourth quarter, but not this year.

Nguyen Van Dinh, chairman of the Vietnam Association of Realtors, said most buyers in major cities are looking for low-priced housing (below VND35 million per square meter), but that segment has virtually disappeared from the market in recent years.

Some 80% of new housing projects this year are in the high end (over VND60 million per square meter), he said.

"The demand for affordable housing is high, but this segment has been largely neglected (by developers)."

Supply is expected to improve but the high-end segment will continue to dominate the market.

Real estate services firm OneHousing forecast that over 30,000 new apartments will be launched in Hanoi next year and 12,000 in HCMC, but most would be in the high-end segment.

To address the rising prices, Dinh said authorities should find ways to promote the social and affordable commercial housing segments.