Young people increasingly willing to incur debts to buy homes

By Quang Huong   May 30, 2024 | 08:56 pm PT
Thuy Linh, 29, bought an apartment in Hanoi valued at VND2.7 billion (US$106,000) with a VND200 million down payment.

Linh, who is finishing her undergraduate degree in Germany, bought the 54-square-meter apartment in Nam Tu Liem District at the end of March.

She obtained a bank loan using her elder sister’s salary documents. Though not planning to move in immediately, she was persuaded by her sister who said apartment prices would rise significantly soon.

"My sister said an apartment costing VND2-3 billion now could increase to VND4-5 billion in a few years," she says, pointing out that prices of apartments in that location had risen by VND100 million between Friday and Monday.

"I had VND200 million, and my mother lent me the other VND83 million for the deposit," she says. "So I financed the remainder through a bank loan, repayable over 10 years at an approximate 10% interest rate."

Linh also says she would not have to pay interest for the first two years.

According to a recent survey by digital property marketplace Property Guru, there is a growing trend of young people buying real estate.

The demand for homes in the 22–34 age group increased from 39% in 2021 to 42% in 2023.

A person taking money from the bank. Illustration photo by Pixabay

A person taking money from the bank. Illustration photo by Pixabay

There was a surge in interest among the 22–26 age group, with the rate of those searching for homes to buy jumping from 13% in 2021 to nearly 19% in 2023.

Contrary to previous beliefs that one should only buy a home when financially secure, more young people now opt for loans to buy homes compared to earlier generations.

Real estate listings platform’s recent Consumer Sentiment Study (CSS) report says 75% of people aged 22-29 prefer taking loans for home purchases as against 68% of those over 30.

The report also says 60% of people aged 22-29 are confident about their future ability to buy a home.

Linh exemplifies this optimism, utilizing financial leverage to achieve her goal of home ownership, confident that her post-graduation salary would cover the monthly loan repayments.

"I currently save between 1,000 and 1,200 euros (US$1,081-$1,297) monthly from my part-time and remote jobs," she says. "Once I complete my engineering degree, the starting salaries in my field are generally above 3,000 euros."

In the event, she expects to clear her debt within two or three years. "Once I take over the apartment next summer, I’ll rent it out and expect an additional income of VND8-9 million, which will help pay the loan."

If things do not go to plan, she believes she can sell the apartment for a profit as there is already interest in the property, and invest in another similar project.

However, not everyone shares her optimism. Thao Le, 29, of HCMC decided to borrow 70% to make a down payment on a VND3.1 billion apartment two years ago despite her wildly fluctuating income from an online business.

"I took a bank loan of VND2 billion," she says. "The interest rate was initially 8.4% per year, but it’s set to increase to around 10% after two years."

Initially confident she could settle the debt in three years, Thao soon found it challenging.

There were months when she managed to pay VND200 million to the bank, but as her business faltered, she has adjusted her expectations to five to 10 years and now works harder to maintain her current monthly payment of VND10 million.

"I start my day at 5 a.m. and work until 11 or 12 at night," she says. "There’s pressure to pay off the loan early."

Experts say advances in information technology have created innumerable high-paying job opportunities for young people, surpassing those of previous generations. This prompts young people to start investing in real estate early.

"If I don’t buy a house now, how will I afford one in a few years when salaries aren’t increasing much, but prices are skyrocketing?" Linh asks. "Nobody waits until they have enough money to buy a house now."

Thao attributes this trend to social media pressure and the younger generation’s desire to prove themselves.

"I spend a lot of time on social media, and see many young people sharing their stories about buying homes, which influenced me.

Seeing many peers live in their own houses also played a part in sparking her desire to buy one. "I also want to inspire those from rural areas moving to urban centers that if I can buy a house in the city, they can too. Owning a house would make me feel more secure and able to continue my work."

However, experts warn financial leverage should be used cautiously, and say the ideal loan proportion should not exceed 50% of the asset value since anything higher could lead to a debt trap when interest rates increase after promotional periods.

Thao has experienced this first-hand, and describes how working from dawn to late evening to pay the bank restricted her personal development opportunities.

"I began to wonder why everything in my life revolves around the house," she elaborated. "My job requires continuous learning, but I’ve had to sideline that because I need to work all day to afford the house. I’ve become a different person."

Her work also takes a toll on her relationships, she says.

The financial strain has affected her emotionally, making her "stressed and often irritable," which in turn impacts her interactions with others, she admits.

Rather than feel the joy of owning a house, she feels regret for not choosing a more financially manageable option. "I initially thought I would only buy a house once I had 70% of the price in cash."

On reflection she believes this is the right approach.

"If I could go back, with VND1 billion, I would opt for a property costing VND1.5-2 billion," she says. "Then I would have paid off the loan very quickly."

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