Indians are borrowing heavily against gold⁠— but it may have been wiser to borrow money to buy the precious metal instead of homes

• The amount of debt that Indians have taken on has nearly doubled over the past five years.
  
• Most of the borrowing has been done in the name of buying up more real estate even though it offers the worst returns.
  
• Gold offers the highest returns yet accounts for only 11% of a household’s total wealth and they borrow against it.
  

The average Indian household has been taking on more debt for nearly half a decade now. In fact, debt has nearly doubled with loans becoming cheaper to pick up over the past five years.

This includes everything from home loans to vehicle loans — and even gold loans, where gold is given up as collateral in exchange for money.


This year alone, loans against gold have increased sharply even as banks are left craving for borrowers.

^{*Data as of July-end except for Manappuram, which is as of June-end}

Household debt is rising but where is the money going?
Indians are famous for their love of gold but the biggest chunk of their investment is still real estate.

While Indians still have a lot more gold than the average household in peer economies, their investments in real estate also race ahead — funded mostly by home loans.


India outpaces China, Thailand and other countries around the world both in buying gold and property. But, the return of real estate has not even managed to beat the average inflation rate of the last five years. Whereas gold has given better returns than any other asset.


Home loans may be cheap, but they’re harder to pay off
Owning property remains an aspiration for the average household in a developing economy like India.

However, to buy more real estate, one needs a home loan. And, right now, home loan interest rates are at an all-time low. It makes them attractive but hardly adds to the household net worth.

While cheap loans have, to some extent, supported the demand for real estate, they have also kept property prices from falling. So much so that, despite the struggles of the property developers in the last few years, homes have only become less affordable.

This affordability ⁠— measured by the amount of EMI compared to the monthly income of a household ⁠— would have only gotten worse in 2020 as the pandemic took away jobs and slashed salaries.

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