According to analysts, given the low inflation, the State Bank of Vietnam (SBV) may decrease policy rates further before the end of the year.

Bank profits are no longer attractive

In reality, the SBV has decreased policy rates for the fourth time since the beginning of 2023, despite the fact that inflation in the United States remains high and the European Central Bank continues to boost interest rates. SBV's leadership indicated that if conditions allow, the institution will lower the policy interest rate further in the near future. If policy rates are not dropped, the SBV compels commercial banks to slash operating expenses in order to lower lending rates even more.

In particular, in the beginning of July, the interest rate for house purchase loans was dramatically reduced, with several banks offering interest rates of less than 10% per year. Woori Bank, for example, has an annual interest rate of 7.8%; Shinhan Bank charges an annual interest rate of 7.99% for the first 6 months and 10.5% for the next 54 months. For consumers borrowing to buy a property in the first six months, TPBank charges 8% per year, 12% per year for the next six months, and a variable market-based rate of roughly 13.5% per year beginning in the thirteenth month.

Other banks, such as HDbank (8.2% per year); VIB (8.5% per year); Eximbank (8.5% per year); SeABank (9.29% per year); and UOB (9.49% per year), also provide favorable lending rates.

Floating interest rates of 12 - 13.5% are still popular at several commercial banks at the moment. After the favorable time, some banks had rates as low as 14.2%. This interest rate level is predicted to remain and is unlikely to fall below 10%.

Dr. Can Van Luc, BIDV's Chief Economist and a member of the National Financial and Monetary Policy Advisory Council, expects that domestic policy rates will continue to fall from 4.5% to 4% by the fourth quarter of 2023 and might reach 3.5% in early 2024.

VNDirect Securities also predicts that the average 12-month term deposit interest rate would fall to 6% by the end of 2023. Because credit institutions' cost of capital is decreasing, lending rates may begin to fall in the second half of 2023.

At the moment, the return on term deposits has reverted to early 2022 levels, signaling that bank profitability is no longer appealing. Investors predict that this capital flow will migrate to the real estate industry, especially given the huge drop in land and property prices.

Signs of capital inflow

According to economic analyst Dr. Dinh The Hien, the fall in lending rates has a beneficial but not overpowering influence on the real estate market. Capital will enter the real estate market, but not in the quantities envisaged.

Mr. Hien believes that numerous criteria must be met for the market to rebound, including a big input of cash into the real estate industry, which will provide liquidity and impetus for buying and selling. Furthermore, house prices must fall. However, a new surge of investment cash into the real estate market in 2024 seems improbable. While lower lending rates can make loans more accessible to existing purchasers, achieving a speedy real estate market rebound requires additional impetus from general economic growth, government policy, and infrastructure.

According to data from Batdongsan.com.vn, interest rates may continue to fall in 2024, although they are unlikely to go below 10%. As a result, short-term market recovery expectations may be difficult to meet.

Mr. Nguyen Van Dinh, Chairman of the Vietnam Real Estate Brokers Association, said real estate would be still a favorite investment channel since it is ideal for asset building habits and provides relatively strong capital preservation when compared to other investment options. If the trend of lower lending and deposit rates continues in the coming months, bank money will return to the market in search of possible investment channels with higher rewards than savings.

According to Mr.Dinh, the entire deposit amount from businesses and people into the banking system will have climbed by approximately 900 trillion Vietnamese ng by 2022. The third quarter of 2023 is a critical moment since a large number of bank deposits will mature. If deposit and lending interest rates continue to fall, matured money is likely to prioritize returning to the real estate market.

The Vietnam Real Estate Brokers Association also sees evidence of money returning to the market, as a customer recently obtained a new loan with interest rates ranging from 10% to 11%. The real estate market, on the other hand, will not respond until the average interest rate falls below 10%. When borrowing, this is the level that investors are more inclined to tolerate.

Experts also think that the fourth quarter of 2023 is a significant challenging time that will define the real estate market's recovery and growth potential. It is also the closest milestone to testing the real estate market's demand resistance zone as savings interest rates fall, lending rates change, and credit facilities grow.