Low-interest mortgages attract little interest amid soaring property prices

Phuong, a head nurse at a hospital in District 1, has VND2 billion (US$81,200) in savings and had planned to borrow VND1 billion from a bank to buy a two-bedroom apartment in District 7.

But she gave up the idea after looking at listings for a few days since she found prices were considerably above her budget.

Apartment prices have skyrocketed in Hanoi and HCMC. Around 80% of newly launched apartments this year have been priced at VND50 million per square meter or higher. In central areas, they go up to VND100 million.

Banks have been offering loans at reasonable interest rates. State-owned lenders Agribank, Vietcombank, VietinBank, and BIDV have kept their mortgage rates at 5.2-8.5%. Other banks are offering at 6.6-9.5%. These rates are around 2 percentage points lower than last year.

Yet loans only grew by 1.2% in the first seven months in HCMC, according to the State Bank of Vietnam.

Banking insiders said despite promotions such as mortgage refinancing offers, credit growth remains sluggish.

BIDV head economist Can Van Luc said the high prices are the cause of this. "I believe that demand for property is high in Vietnam, but buyers are struggling to find affordable products."

Market observers expected the declining mortgage interest rates to increase home buying, but that has not happened and instead people seem to be depositing money in banks and waiting for prices to cool, Phan Le Thanh Cong, CEO of consultancy firm AFA Group, said.

According to the Vietnam Association of Realtors, a family needs to have an income of VND35-40 million a month to cover mortgages, or double the average income of an urban family.

Nguyen Van Dinh, the association’s chairman, said the government needs to roll out policies to lower prices to affordable levels. Credit approval criteria should also be lowered to attract more borrowers, he added.