Housing transactions spark a surge in loans

With growing expectations for a real estate market expansion, household loans saw their sharpest monthly increase in four months.

According to the Bank of Korea yesterday, household loans from banks in October amounted to 474.4 trillion won ($442 billion), 2.5 trillion won more than the previous month.

The additional amount of loans taken out was the largest since June, when they increased 4.8 trillion won month-on-month. Borrowers rushed to financial institutions in June with government real estate benefits, including a cut in the acquisition tax, set to expire at the end of the month.

Fresh loans dwindled until the government presented an additional real estate stimulation package in late August.

The new stimulus package included a permanent reduction of acquisition tax as well as other benefits such as low interest loans.

However, the market remained subdued as opposition from local governments raised doubts about whether the package would be enacted.

It was only after the ruling Saenuri Party recently announced its full support of the lower acquisition tax that the market started to respond.

A survey by the Korea Housing Institute showed a boost in optimism about a housing market recovery.

The housing business sentiment index last month for the greater Seoul area was 115.6. This is up from 96.7 registered in September. The index has been on the rise for two consecutive months. A reading above 100 shows that a majority of the 500 companies in the Korea Housing Association and the Korea Housing Builders Association are optimistic.

The index for Seoul also went up from 113.3 in September to 123.3 in October.

“It’s clear that last month’s housing loan increase was largely due to lively housing transactions,” said a BOK official.

However, the problem of household debt is that it is already at a critical point and a further increase will threaten the financial market, especially once the central bank starts tightening its monetary policy.

The central bank will hold its monthly monetary policy committee today. The market is betting the bank will keep the current benchmark rate unchanged at 2.5 percent, as uncertainties remain about when the U.S. Fed might start to taper its quantitative easing.

Previously, the market bet that the bond-buying program would likely remain until March. However, a positive U.S. jobs report on Friday has raised the possibility that the U.S. Fed could start scaling back its stimulus program as early as next month.

The Fed’s next meeting is scheduled for Dec. 17-18.

Although corporate loans grew, the amounts that were added last month were smaller than those made the previous month.

In October, 4.1 trillion won in additional loans were made to companies, bringing the total amount of outstanding loans to 630.7 trillion won. This is much less than the additional 5.8 trillion won in corporate loans in September.

Borrowing from small and midsize companies was nearly half compared to the previous month.

Loans to conglomerates added 1.3 trillion won to the 56 trillion won total in September, while those to small and midsize businesses added 2.8 trillion won to 474.6 trillion won.

In September, loans by small and midsize businesses increased by 4.1 trillion won from the previous month.

In addition, the yield on corporate bonds has gone up significantly as a result of the Tongyang Group crisis. The interest on three-year corporate bonds with an AA- rating has gone up from 3.29 percent in October to 3.42 percent as of Tuesday.

BY LEE HO-JEONG [ojlee82@joongang.co.kr]