Falling rates still not enough for homebuyers

Tech engineer Kien in Ho Chi Minh City recently looked at a 84-square-meter lot of land in Thu Duc City priced at VND3.5 billion ($142,400).

He would need to borrow at least VND1.7 billion to purchase it, which he wanted to do in order to build a home.

The three banks he approached all offered interest rates of 8-9% for the first year, but will increase starting from the second year to around 11.5-12% a year.

To secure a 20-year loan Kien would have to pay VND20 million a month, which was beyond both he and his wife’s financial capabilities.

"Loan interests are too high for our income," he said. "We will just have to wait for further drops."

Chien in Thu Duc City is facing a similar problem as banks offered him a 8.5% loan interest rate for the first year and 11-12% for later years.

He would have to pay VND18 million a month to secure a VND1 billion loan in order to buy a VND2.2 billion apartment he wanted.

"My wife and I will have to pay VND18 million a month against a combined income of VND40 million, which is too risky," he said.

Loan interests have dropped by 1-3 percentage points since the beginning of the year to 7-9% a year, but most banks keep a floating interest starting the second year, which is often around 10.5-12.5% a year.

These rates are too high for the majority of homebuyers as demonstrated by recent slow growth credit rate in this category, according to data from banks.

VPBank recorded a property credit growth rate of 45% year-on-year in the first nine months to VND98.19 trillion, but credit to homebuyers alone grew only 6.6%.

Techcombank’s property credit growth rate rose 47.2% year-on-year, but loans to individual homebuyers dropped 9.2%.

Data from the State Bank of Vietnam showed the same trend. By the end of August credit given to homebuying fell 0.79% from the end of July, indicating a decline in demand.

The Vietnam Association of Realtors said that by the end of September 13,000 property products have been bought, but most with buyers’ own money and few borrowed from banks.

Dinh Minh Tuan, director of property listing platform Batdongsan’s southern operation, said that although interest rates have dropped, they still remain too high for most buyers.

A Batdongsan survey of 2,000 people in the third quarter showed that 44% thought 8% interest or lower was reasonable, while 33% were comfortable with the 8-10% range.

Only 14% were willing to pay 10-13%.

"Amid economic challenges, homebuying customers are not a priority for banks," Tuan said.

Nguyen Van Khoi, chairman of the Vietnam Real Estate Association, said that loan interests should be below 7% for homebuyers. But he admitted that in the short-term it would be very difficult for banks to bring their rates down to this level.

Ngo Quang Phuc, CEO of property developer Phu Dong, said that the lack of affordable property also adds to the challenges faced by homebuyers.

"There are not enough positive signs in the property sector for homebuyers to get loans at this time."