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Is Real Estate Most Affected If Interest Rates Rise?

Experts said that if the interest rate increases, the real estate industry will be affected significantly because this sector has a high debt ratio. Increasing interest rates will increase borrowing costs, affecting the needs of buyers.

“If interest rates go up, which sector or real estate sector will be most at risk?”  be one of the issues of special interest to investors and specialists.

There is pressure to raise interest rates

Commenting on the direction of the interest rate in 2017, Nguyen Duc Hung Linh – Director of individual customers of Saigon Securities Inc. (SSI) said: “To forecast interest rates, we must look at the effects on interest rates such as inflation, exchange rates and liquidity of the banking system.

In particular, forecasting inflation is a big and difficult problem. This year, there are many variables such as commodity price volatility, health and education. At the beginning of the year, I was worried about inflation but so far inflation concerns have been reduced somewhat as petrol prices have not increased and cooled down. With the current situation, the 2017 expected inflation rate will be kept at 4-5%. “

Real estate is affected when interest rates rise
The exchange rate in 2016 is stable, the USD Index has fallen, the US dollar depreciates against most of the strong currencies

According to Nguyen Duc Hung Linh, the exchange rate in 2016 remained stable, the USD Index fell, the US dollar depreciated against most of the strong currencies. The most difficult problem for Vietnam nowadays is the Renminbi, but it is unlikely that the pressure to adjust the exchange rate will not be as urgent as in late 2015.

On the liquidity side, in the short term, there is a phase shift between credit and mobilization. Long term depends entirely on the State Bank’s regulatory policy. If the equilibrium is reached when the interest rate can completely stabilize again. In addition, it is necessary to maintain a balance of growth, based on a positive overall balance and thus be able to keep interest rates stable in 2017.

Also commenting on this issue, Dr. Can Van Luc affirmed that the pressure to increase interest rates is available in 2017. However, if drastic and manageable, the level of lending rates will stay at current.  Mr.Luc’s plan to keep interest rates is to accelerate and strengthen the process of weak banking restructuring and the process of dealing with bad debt. At the same time, it is necessary to find measures to increase capital mobilization from the population to put into production and business and closely monitoring internal and external events in order to respond in time. The last soft measure is the psychological measure.

If the bad script happens?

Dr. Nguyen Duc Do, deputy director of the Institute of Economics and Finance, said that raising interest rates would make the whole economy will be difficult. Particularly for banks, if deposit rates increase, lending rates will increase but may be lower because of the current weak economy. The likelihood of credit growth will not increase sharply as in 2016. This will reduce the bank’s profitability and reduce its resources to handle bad debt.

Dr. Can Van Luc is concerned, when interest rates rise, the State Bank’s policies on controlling loans in the areas of risk such as real estate and securities will face certain difficulties. However, if real estate developers do well, they will not be affected much.

With this industry, Nguyen Duc Hung Linh said that with the banking industry, interest rates increase will generally be beneficial. Statistics show that in the eleven weeks after D.Trump won the US presidency, expecting interest rates to rise sharply, cash inflows into financial and banking investment funds rose to $ 14.5 billion. In contrast, the real estate industry withdrew about $ 6.1 billion in the United States.

In Vietnam, the mobilization interest rate increased, leading to higher lending interest rates.

In Vietnam, the mobilization interest rates increased, leading to higher lending rates. In 2017, banks are targeting growth not too high. The general policy is to regulate, stabilize credit growth and mobilize, banks can transfer prices to customers and benefit.

For the stock market, Mr. Linh said that no one likes interest rates increase. Low-interest rates will help increase valuations and make cash flow looking for high-yield investment channels such as securities.

If interest rates gradually increase from now until the end of the year that will be a bad signal for the economy in general and the stock market in particular. Assuming interest rates increase, the impact on the real estate industry is most obvious, this is the sector of high rates of debt, rising interest rates will increase the cost of borrowing, affecting the needs of buyers. “According to my statistics, real estate debt outstanding on the stock market largest market. Long-term is about $3,640,000,000 ;  short term is $1,260,000,000.  The total outstanding balance of the whole industry is about $ 4,900,000,000.

In addition, rising interest rates will make it difficult for businesses to take out loans, which, in the analysis, translates into buyers and increases profits”, Mr. Linh said.

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