Home loan interest rates are rising, should you invest in real estate?

Since the beginning of August, many banks have increased preferential interest rates for home purchases fixed for the first 1-3 years and floating interest rates by 0.5-1%/year.

Specifically, the current interest rate for home loans ranges from 4.99 - 9.5%/year. After the preferential period, the floating interest rate for old borrowers of banks mostly reaches over 11%/year.

Having just borrowed more than 1 billion VND to invest in a 2-bedroom apartment for rent, about 70 square meters in Thanh Xuan district (Hanoi), with a preferential interest rate of only 6% for the first year, Ms. Tran Mai Xuan cannot help but worry when the loan interest rate starts to increase again.

"Interest rates have been on the rise recently. If the floating interest rate next year is around 11-13%, I will have to shoulder a huge debt. I hope the floating interest rate only increases to 9-10% at best. If the interest rate increases too much, I will have to consider borrowing from friends and relatives to reduce the bank loan," said Ms. Xuan.

Not daring to invest as much as Ms. Mai, many people are not interested in borrowing from banks at this time. They explain that, in fact, although the interest rate for home loans is low, this interest rate is only applied for a short period of time, from 3 to 6 months or longer than 1 year. After that, the interest rate will be floating. Currently, the floating interest rate at many banks is quite high, from 9 to 10% per year, some banks even up to 12 to 13% per year.

A recent survey of real estate users published by PropertyGuru Vietnam showed that more than 50% of survey participants believe that home loan interest rates below 8% are reasonable, 29% accept interest rates of 8-10%, and only 10% accept borrowing at interest rates of 10-13% (based on the floating rate). However, most people who are borrowing to buy a house share that they still have to borrow at an average interest rate of over 11.5-13%.

Mr. Dinh Minh Tuan, Director of PropertyGuru Vietnam in the Southern region, recommends that borrowing money to invest in real estate at this time should not be a priority because in the next few months to half a year, bank interest rates will increase, leading to an increase in home loan interest rates, especially when interest rates are floating, the financial pressure will be very large.

Expert Nguyen Tri Hieu also pointed out another reason to consider when borrowing money to invest in real estate. That is, real estate prices are currently too high. When housing prices are too high, bank loans will also be high, making the financial burden heavier. Not to mention that when housing prices are high, investors cannot buy, even if accepting a bank loan rate of 70 - 80%, the initial amount of money spent is still very large.

In addition, according to experts, real estate investment at this time does not give a high rate of return.

If in the past, buying an apartment for about 3 billion VND could be rented for 10 - 12 million/month, now to rent at this price, the initial investment must be up to 4.5 - 5 billion VND. Thus, the profit potential from renting is not very attractive.

According to Mr. Dinh Minh Tuan, people who want to buy or invest in a house in Hanoi or Ho Chi Minh City should only consider it when they have an income of 30 million VND/month or more. A private house or apartment in the two big cities currently costs at least 2 - 2.5 billion VND. If borrowing 50 - 70% of the real estate value, which is about 1.4 - 1.5 billion VND, the homeowner must pay 12 million VND in interest and about 5 million VND in principal each month.

“If the income is 30 million VND/month or more, when the buyer subtracts 17 million VND in interest and principal, there is at least 13 million left to cover basic living needs. If the income is less than 30 million, it will be very difficult,” said Mr. Tuan.

However, according to this person, in about 2-3 years, when bank borrowers start to have to pay floating interest rates, the market will recover and buyers will be able to start selling or investing to make a profit from the above investment.

However, if it is to invest in land, Mr. Tuan recommends that investors should be more cautious. Because land is a long-term investment channel that requires capital, although the market is forecasted to recover, it will be in a stable direction and it is unlikely that there will be land waves like in previous years.

Therefore, borrowing to buy land with the expectation of short-term profit is very difficult at this time. To participate in this playground, investors need to prepare a "safe and secure" mentality and have a long-term idle cash flow. In case of a stable source of income, they should only borrow up to 30% of the property value.