WHY DO REAL ESTATE BONDS HAVE TO OFFER INTEREST RATES OF 12–13% PER YEAR? HOW IS THE RACE TO DEVELOP PROJECTS CHANGING?

1. The bond market is recovering, but access to capital is becoming increasingly differentiated

Following a period of restructuring and negotiations to extend or defer debt repayments under Decree No. 08/2023/ND-CP, the corporate bond market has entered a selective recovery cycle. However, rather than seeing a broad-based decline in borrowing costs, the market is showing a clear divergence:

1.1. Commercial banks:

Banks are stepping up medium- and long-term bond issuance to strengthen their capital base and manage capital adequacy requirements, including the limits on the use of short-term funds for medium- and long-term lending. Notably, banks with relatively large exposures to real estate and construction are offering slightly higher yields than the market average to attract institutional investors. (Dau Tu)

1.2. Real estate companies:

Developers are having to accept bond yields of 12–13% per year, significantly higher than the average of 9.5–10.5% in the preceding period. The recovery in issuance volume has not been accompanied by lower funding costs; instead, it has moved in tandem with the risk premium demanded by investors. (VnExpress)

1.3. Rising debt maturity pressure:

Bond repayment obligations are concentrated in the second half of the year, prompting developers to proactively seek refinancing sources while accepting higher financing costs to meet their debt obligations and maintain progress on project approvals and construction. (VTV)

2. Looking back at the 2024 bottoming phase and heavy maturity pressure to understand the cost-of-funding squeeze

• 12–13% per year: In 2024, several real estate companies and related corporate groups issued bonds at high interest rates. Tandoland JSC issued bond series TDNCH2429001, worth VND 258 billion, with a five-year tenor and an initial interest rate of 13% per year. In the same year, Vingroup issued bond series VICH2426001, worth VND 2 trillion, with a 24-month tenor and an interest rate of 12.5% per year. (Tandoland bond disclosure; CafeF – Vingroup bond issuance)

• Around 12% per year: In Q3 2024, bonds issued by real estate companies recorded the highest yields among major sectors, at around 12% per year, compared with an average of nearly 10% for the overall market. (CafeLand – Q3 2024: Real estate corporate bonds offer the highest yields)

• Approximately VND 98.9 trillion: This was the estimated value of real estate corporate bonds due to mature during the remainder of 2024, equivalent to around 38% of total corporate bonds falling due during the period. This was an estimate made at the time in 2024 and does not represent current-year data. (Reatimes – Real estate companies lead the market in early bond buybacks)

• More than 3x to 5x: Financial leverage ratios—measured by debt-to-equity and total liabilities-to-equity—at some issuers that recently raised capital at high interest rates indicate mounting pressure on their balance sheets and debt structures.

3. Three changes reshaping the real estate debt capital market

The real estate debt market is undergoing fundamental changes in the way it operates:

• Credit ratings and payment guarantees are receiving greater attention: Bonds are no longer being issued on a widespread “three-no” basis—without guarantees, collateral, or credit ratings. Recent successful issuances have increasingly been accompanied by credit ratings from independent agencies such as FiinRatings, Saigon Ratings, and VIS Rating, or payment guarantees from commercial banks. (FiinRatings)

• Interest-rate structures are shifting toward floating rates with wider spreads: Rather than remaining fixed throughout the tenor, current bond structures commonly feature a fixed coupon for the first one or two interest periods—typically around 12–13%—followed by a floating rate based on a reference rate plus a spread of 4.5–5.1% per year. This effectively shifts future macroeconomic interest-rate risk to the developer.

• Use of proceeds is being disclosed more specifically: Bond issuance disclosures increasingly require companies to clearly state how proceeds will be used, such as financing specific projects or refinancing existing debt. For example, in 2024, Kinh Bac City Development Holding Corporation (KBC) issued bond series KBCH2426001 worth VND 1 trillion, with a two-year tenor and a fixed interest rate of 10.5% per year; the proceeds were used for debt restructuring. (Mekong ASEAN; VSDC)

4. How do 12–13% funding costs affect project development efficiency?

From the perspective of developers and project management consultants, funding costs of 12–13% have a direct impact on every stage of project execution.

4.1. Total investment costs come under pressure from prolonged financing expenses

Interest expense and other borrowing costs cannot be capitalized indefinitely into project value under accounting standards. At interest rates of 12–13%, financing costs could account for 15–22% of total investment costs if legal procedures take an additional 12–18 months to complete. This directly erodes the net profit margin and pushes the project's expected internal rate of return (IRR) below the 15% safety threshold.

4.2. Selling prices and absorption rates face a trade-off

As the cost of capital rises sharply, developers are forced to raise primary-market selling prices to protect profit margins. However, with market liquidity still concentrated largely in genuine housing demand and buyers remaining highly price-sensitive, higher selling prices can slow the absorption rate, leading to a buildup of unsold inventory and bottlenecks in cash-flow turnover.

4.3. Construction progress becomes critical to debt-servicing capacity

Periodic interest payments on high-cost bonds require project cash flows to remain highly viable. Developers no longer have the financial flexibility to simply “sit on land” and wait for prices to appreciate. Higher financing costs are forcing them to accelerate technical development and reach key completion milestones—such as pile and foundation completion and technical infrastructure acceptance—so that projects become eligible for sale and developers can collect payments from homebuyers under Law No. 29/2023/QH15 on Real Estate Business.

5. Four paradoxes and risks to watch behind the high-interest-rate environment

5.1. Banks and real estate companies are competing for the same pool of capital

Sources: Dau Tu and Tin Nhanh Chung Khoan.

As commercial banks with significant real estate exposure step up bond issuance at higher rates to strengthen their medium- and long-term funding base, they are competing directly with real estate companies for available liquidity. Developers are consequently forced to push coupons as high as 12.5–13% to attract bond investors.

5.2. Capital raising is shifting from expansion to financial defense

Sources: Lao Dong and Dantri.

Many recent large-scale bond issuances are not aimed at expanding land banks but at addressing two critical priorities: restructuring bank debt and keeping stalled or incomplete projects moving. A 13% funding cost is effectively the price companies pay to maintain business continuity and avoid falling into financial distress as debt maturities approach.

5.3. Credit ratings are becoming a key filter among developers

Sources: FiinRatings and VnExpress.

The bond market is becoming increasingly segmented according to issuers’ credit quality. Developers with stronger credit profiles—for example, ratings of A- or vnA+, depending on the rating system—and healthier financial positions generally have an advantage in raising capital at more reasonable costs. Conversely, companies with lower credit ratings, such as vnB+, typically face higher funding costs and stricter issuance conditions. This differentiation is helping screen out companies with excessive financial leverage while increasing pressure for greater transparency and stronger risk management.

5.4. A shortage of long-term investors is keeping the liquidity premium elevated

Sources: FiinRatings and CVS News.

Vietnam's debt capital market still has limited participation from long-term institutional investors, including insurance and pension funds. As commercial banks face restrictions on corporate bond investments, the lack of institutional demand is contributing to a high liquidity premium that issuers must pay to attract individual investors and short-term professional investors.

6. 2026–2030: How should developers restructure their capital strategies?

Double-digit bond yields are not merely a temporary phenomenon; they signal that the era of “cheap capital and easy leverage” in the real estate sector is coming to an end. During the 2026–2030 development cycle, developers are likely to undergo fundamental changes in how they manage and deploy capital:

Optimize balance sheets rather than simply expand land banks: Developers need to prioritize controlling debt/EBITDA and financial leverage ratios. The model of accumulating land banks with short-term debt for speculative purposes may face increasing pressure as funding costs rise and credit conditions tighten. Instead, companies are likely to prioritize phased development of land banks, aligning investment plans with financial capacity and actual market demand.

Diversify the capital stack: Rather than relying excessively on the traditional “bank credit–corporate bond” combination, professional developers are likely to increasingly turn to M&A transactions, international joint ventures (JVs), real estate investment trusts (REITs), and preferred equity to increase the proportion of genuine equity capital.

Standardize information transparency: Regular credit ratings and standardized disclosures in line with VSDC/HNX practices will become increasingly important prerequisites for companies seeking to lower their borrowing costs. (HNX)

Conclusion: Competitive advantage will belong to developers that can control cash flow

Real estate bond yields of 12–13% per year reflect the underlying risk and refinancing pressures facing the market during this transitional period. For project developers, high funding costs are the clearest warning signal yet: success in the next phase will no longer belong to companies with the largest land banks, but to those with the most sustainable capital structures, the strongest ability to control project timelines, and the capacity to deliver products that meet genuine market demand.