Should I buy land with my $24k or put it into savings?

Question from reader Khang Tran:

My wife and I have a savings of VND600 million (US$24,545) and are currently renting a house in Ho Chi Minh City. I plan to save until the third quarter of 2024 to buy on installment an apartment worth VND2 billion in the city’s suburbs. Currently, my savings are in a bank account with an interest rate of just under 6% per year. To have more money to buy a house, I am wondering whether I should use the VND600 million to buy a plot of land in my hometown (in a small town) and then sell it for profit by the third quarter. My wife, however, is afraid that if we buy land and its price does not increase or there are no buyers by then, it will be difficult to have enough money to buy a house.

I hope anyone with the experience can advise on whether I should buy land or continue to save.

Advice from Vu Tuan Anh, Real Estate Specialist, FIDT Investment Consulting and Asset Management Joint Stock Company:

You are considering two options: buying land or continuing to save in anticipation of purchasing an apartment.

Regarding buying land and waiting for its price to increase to sell in the third quarter of 2024, I believe it is not feasible, especially given the current difficulties facing the real estate market.

You did not specify the area where you intend to buy land. However, regardless of the location, real estate typically represents a long-term investment.

In the past, the strategy of buying and selling quickly within 3-6 months for profit was only possible during periods of intense market growth and active transactions.

With the current situation, although there are predictions that the market may recover from the third quarter, this is expected to be a slow and highly segmented recovery.

The rebound will start with real estate that serves actual residential needs, like apartments in city centers, before moving to segments with higher speculative characteristics, such as provincial land.

Therefore, if you choose to invest all your savings in land, you may face the risk of long-term capital immobilization, delaying your house-buying plans.

Regarding the second option, banks are offering favorable interest rate packages for home loans.

It is important to pay attention to certain factors, such as the stability of your income, backup plans for unforeseen risks (emergency fund and insurance), and the appropriate amount to borrow, to ensure that taking a home loan is safe and does not adversely impact your family’s financial situation.

With a savings of VND600 million, you may need to borrow over 70% of the value of the house from a bank, particularly for apartments that are priced around VND2 billion in the suburban areas of HCMC.

If you opt for projects nearer to the city center, the loan proportion will increase. I suggest that a safe borrowing rate should be less than 40% of the home’s value to ensure you have sufficient funds for other expenditures.

If you opt for a higher borrowing rate, the combined income of you and your wife should be pretty high, and the monthly repayment to the bank should be about 30-50% of your family’s income, or less than 70-80% of your monthly savings.

Additionally, savings interest rates have been significantly decreasing since the beginning of the year. A survey of nearly 40 banks shows that the interest rates for six- to nine-month terms are around 2.2-4.3% per year, while for 12- to 24-month terms they range from 3.8 to 5.8% per year.

Therefore, depositing VND600 million in the bank until the third quarter is unlikely to significantly improve your initial home-buying capital. Consequently, you might consider postponing the home purchase to increase your existing savings, ensuring that a home loan will not put your family at risk.

Furthermore, you should start exploring apartment projects that match your financial situation and your family’s living needs from now.

If you decide to buy an apartment, there are two important criteria to thoroughly consider: the legal aspects and living environment. Particularly, pay attention to the pricing of the apartment if you are buying on the secondary market to avoid situations where you focus too much on “fire sales” or “deep discount” properties and end up making a poor purchase.

I wish you success in achieving your goal of owning an apartment for your family.

*The question and answer were translated into English by AI.