Salary 15 million VND/month should I rent or buy a house in Hanoi?

“Buying a house in Hanoi” is a difficult problem for many young people living and working in the capital. However, not everyone can find a suitable solution.

With the mentality of having to settle down before starting a career, many people have tried their best to buy a house. However, recently, many people are not very interested in buying a house and just want to rent. The same goes for young people aged 22-30, many of them wonder whether with the current average salary for this age group (15 million/month), should they buy or rent a house in Hanoi?

MSc. Le Quynh Anh, Lecturer of the Faculty of Finance and Banking - Dai Nam University, gives her perspective on this issue.

Advantages and disadvantages of buying and renting a house

The idea of owning a home makes most of us feel excited and proud, especially for those of us who have graduated from college and have a job to support ourselves in life.

Having your own home makes you feel more secure and more stable in the long term. In addition, the homeowner is free to decorate the house and furnish it as they wish without having to worry about anyone else’s requests. And for many people, having their own home means owning a large asset, marking an achievement in life.

However, owning a house sometimes brings troubles and worries that not everyone knows. Many people want to buy a house, so they mortgage and borrow from banks beyond their ability, so they have to endure heavy pressure in paying the debt and interest every month.

Meanwhile, there are people who prefer to rent a house because of its flexibility, they can easily move to a new place. At the same time, short-term rent is usually not too high, so they do not face too much financial pressure. In addition, changing accommodation also brings a new feeling, making life more colorful.

Illustration photo.

So should I rent or buy a house?

In addition to the psychological factors, preferences and advantages and disadvantages mentioned above, the initial capital factor is also the most important factor that helps us determine whether to buy a house or just rent a house to get the highest benefit.

MSc. Le Quynh Anh uses a Personal Finance mathematical model that is built in a very systematic and easy-to-understand way, along with appropriate economic assumptions to give the answer.

Assumptions include:

- Family consists of a couple with 1-2 children.

- The average salary per person is 15 million/month, so the total income is 30 million/month. Assuming this salary will increase by an average of 4%/year.

- Total average cost excluding housing/month is 20 million/month.

- The average value of a house in Hanoi is 2.5 billion.

- Average rental value is 10 million/month. Average annual rental increase is 1%/year

- The average number of years to pay off a house is 30 years.

- The interest rate for 12-month bank deposits is 6.5%/year (the interest rate is higher than the current rate, but is the average rate of banks in Vietnam with this term in the period 2010 - 2020).

Based on the results of the Personal Finance mathematical model, the Master draws the following conclusions:

With a salary of 15 million/month and no family support for the initial capital equal to the value of the house (2.5 billion), you should not buy a house because you will have to pay a principal and interest much higher than your income, causing great pressure both financially and mentally. So, with such income and conditions, renting a house would be more reasonable.

However, with this salary but the family sponsors 2.5 billion VND equal to the value of the house, young people can invest to make profit in many different ways such as:

Method 1: Do not buy a house but rent, use 2.5 billion to deposit in the bank with an average interest rate of 6.5%/year, 12-month term in the form of compound interest, the money earned after one year will be reinvested. After 30 years, this household will earn 21,226 billion VND.

Option 2: Use the entire 2.5 billion to buy a house and use the monthly savings to deposit in the bank with the same interest rate as option 1. After 30 years, that household will accumulate 16.181 billion VND along with the value of the house at this time.

Method 3: Use this 2.5 billion to partly buy a house in installments, and partly deposit it in the bank (in this case, use 750 million VND as the minimum required by the bank to pay the first installment, use the remaining 1.75 billion VND to pay interest and principal annually, and deposit the additional savings in the bank with the same interest rate as in method 1). After 30 years, the household will accumulate 10.741 billion VND along with the value of the house at this time.

So if you have an average salary of 15 million/month, consider your initial capital condition, as well as predict the value of the house you intend to buy in the future to make a decision to buy a house or rent a house and how to buy effectively. Do not let the outdated mentality of having to have a house at all costs cause you to suffer heavy financial pressure or miss out on more effective investment opportunities.

In addition, when using this Personal Finance model, users can change variables about salary (eg: 30 million/month, 50 million/month), house price... to give the closest results, serving their own decision making.

Personal finance is not only a tool to help manage spending and simple savings, but also a tool to help users plan effective financial plans, in order to make appropriate investment decisions and bring the most economic benefits.

Hopefully, readers have found for themselves the most suitable direction in choosing whether to buy or rent a house in Hanoi through the above analysis.

MSc. Le Quynh Anh - Lecturer of Banking and Finance Department