Seoul warns of debt hangover as apartment price growth peaks in 15 years

An aerial view shows apartment complexes in Seoul, South Korea on October 5, 2020. REUTERS / Kim Hong-Ji

SEOUL, Sept. 23 (Reuters) – A senior South Korean official on Thursday called for increased efforts to deal with the country’s excessive borrowing, saying China’s Evergrande problems serve as an example of the debt problems facing economies could face as they scale back their stimulus measures.

Lee Eog-weon, deputy finance minister, said South Korea should “proactively manage default risks that could arise from excessive leverage and risk-taking,” citing a default Evergrande’s potential as the type of incident that could arise as central banks around the world. unwind monetary policy in the pandemic era.

Koreans are borrowing more than ever, and South Korean policymakers are increasingly concerned that debt will become unsustainable as rates rise, hurting people’s purchasing power and long-term growth. The central bank raised its policy rate for the first time in nearly three years in August. Read more

Lee’s comments come after data last week showed house prices in the capital region, which is home to about half of the nation’s population, jumped 13.11% this year through August. This is the fastest increase in 15+ years than an annual increase of 9.8% last year, according to the Korea Real Estate Board.

The monthly pace of home price increases also accelerated to a 13-year high.

Dozens of loan restrictions and tax measures over the past five years have done little to curb the home buying frenzy. Household borrowing hit a record 1,805.9 trillion won ($ 1.54 trillion) in the June quarter. Read more

Global investors have been in suspense in recent weeks as Evergrande’s debt obligations, working under a mountain of $ 305 billion in debt, have raised fears that his malaise poses systemic risks to the financial system. Chinese. Markets were watching China’s second-largest real estate developer closely to see if it would be able to pay interest on one of its dollar bonds due Thursday. Read more

“At a time when nothing seems to be working to calm the debt frenzy, the lesson from Evergrande is that the crisis will come when you have a lot of debt,” said Park Sang-hyun, analyst at HI Investment & Securities.

“I’m not aware of Korea’s direct exposures, but any instability in the Chinese economy will also hurt Korea’s growth momentum,” Park said.

Housing affordability has also become an issue in South Korea, according to data from Kookmin Bank.

The average price of an apartment in Seoul has roughly doubled over the past five years to reach 1.18 billion won ($ 999,236) in August of this year, according to data from Kookmin Bank.

An apartment in Seoul now costs more than 18 years of South Korea’s median annual household income, down from 11 when President Moon Jae-in took office in 2017, according to the bank.

($ 1 = 1,178.2400 won)

Reporting by Cynthia Kim; Editing by Ana Nicolaci da Costa

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