Borrowing gold to buy real estate, facing hardship because gold price continuously hits new peaks

Headache from borrowing gold to buy real estate.

At the end of 2020, Ms. Nguyen Thuy's family (from Nam Dinh province ) bought a 5-story house in an alleyway in Nam Tu Liem district (Hanoi), with each floor measuring 32 square meters, for 2.7 billion VND.

With approximately 1.2 billion VND, Ms. Thuy borrowed 10 SJC gold bars from relatives without interest. She borrowed the remaining amount from the bank. She explained that most people in her hometown with surplus money buy gold as an investment. Therefore, if you want to borrow, you have to accept borrowing gold, and repayment will also be in gold. At the time her family borrowed, the price of gold fluctuated between 54-55 million VND per tael. Selling the 10 taels of gold would bring in about 540 million VND.

Thinking that the price of gold wouldn't fluctuate too much, Thuy's family focused on paying off their bank loan first. She and her husband also planned to buy gold when the price dropped further to pay off the debt.

However, Thuy's relatives are now suggesting they take back the four gold bars to sell for money to cover their expenses, causing her family a headache because the price of gold has increased so much recently. She calculated that, with the price of gold at around 82 million VND/ounce (updated at the opening of trading on September 24th), the amount her family would have to pay back would be more than 50% higher than when they borrowed it.

"We borrowed for almost four years, and the amount we have to pay has increased by 50%, more than our bank loan. If the price of gold continues to rise, we will have to pay even more. Although the price of my house has increased recently, it hasn't kept pace with the increase in the price of gold," she said.

Ms. Tran Thanh (Cau Giay, Hanoi) shared that at the end of October last year, many land plots in the provinces had seen significant price reductions. At that time, her family found a suitable 120m2 plot in Bac Giang for 4 billion VND. However, having nearly 3 billion VND in hand, she borrowed 15 taels of gold from relatives.

She also said that in her hometown, people tend to be cautious and thrifty, so whenever they have extra money, they buy gold to hoard until the price increases, or they save it for their children and grandchildren. Most people don't have cash readily available, so if they want to borrow, they have to accept borrowing gold. At that time, the price of gold was around 71 million VND/ounce, and she thought the price had peaked. Therefore, when it was time to repay, the gold would at most be equal to or even less than the amount borrowed.

A real estate project in Hanoi (Illustrative image: Duong Tam).

When she sold it, Ms. Thanh received nearly 1.1 billion VND and quickly put down the money to finalize the purchase of the plot of land she had viewed. However, recently, the price of gold has been continuously rising sharply, while the price of the land she bought earlier hasn't increased much, leaving Ms. Thanh disappointed.

"Now I just hope the price of gold will stabilize soon. This is also the first time I've borrowed gold, so I haven't fully anticipated the risks," Ms. Thanh lamented.

Limit the use of financial leverage.

Mr. Vo Hong Thang, Director of Consulting Services and Project Development at DKRA Group, stated that the nature of borrowing gold means that repayment must also be in gold. Therefore, if borrowing, it must be clearly agreed whether the repayment will be in gold or in cash at the value at the time of borrowing.

In reality, while gold prices have risen sharply recently, real estate prices in the city center have also increased significantly. In fact, housing prices in urban areas like Hanoi have risen much higher than gold prices over the past 3-4 years. Conversely, there are rare cases where people bought houses but their value hasn't increased much since then, while gold prices have risen very rapidly.

However, Mr. Thang believes that borrowing gold to buy real estate is not very common. If the property has complete legal documentation, people should choose to borrow from a bank, which would be more advantageous. Nevertheless, using financial leverage requires careful consideration of repayment ability. Buyers should only borrow about 50% of the property value to ensure safety.

Mr. Le Dinh Chung, a member of the Market Task Force of the Vietnam Association of Real Estate Brokers (VARS), believes that most people who borrow gold to buy houses or invest in real estate do not fully understand the risks and volatility of this type of asset. For properties with clear legal status, if financial leverage is needed, Mr. Chung suggests that a certain amount can be borrowed from a bank.

"If you buy in the center of Hanoi, the rate of house price increase over the past period is not too bad compared to gold. However, for those buying real estate in the provinces who borrow money in gold, they will certainly be at a disadvantage," Mr. Chung stated.

According to him, homebuyers should only use financial leverage of about 50% of the property value at all times in the market to ensure affordability. Currently, buyers should reconsider using financial leverage because house prices have risen significantly. At the same time, the future trend of the real estate market remains unclear.

Many experts also advise that real estate buyers should limit the use of financial leverage, as the current real estate market remains uncertain whether prices will continue to rise or correct.

Source: https://dantri.com.vn/bat-dong-san/vay-vang-mua-bat-dong-san-meo-mat-vi-gia-vang-lien-tuc-lap-dinh-20240923164725293.htm