Economists fret about total debt
The Korea Development Institute surveyed 402 economists in October about their forecast for the real estate market in the fourth quarter of the year. About 66 percent supported the government’s plan for greater scrutiny of borrowers’ debt-to-income (DTI) ratio next year, a key restriction on how much people can borrow to buy real estate.
More than 90 percent of the economists said Korea’s household debt is at a very high or high level. The latest Bank of Korea data showed the country’s total household debt surpassed 1,100 trillion won ($972 billion) in the second quarter, rising at the fastest pace ever.
Nearly 50 percent of the respondents said real estate prices would rise in the fourth quarter. Many said that Sejong City, where the newly-built Sejong Government Complex is located, will see a spike in demand and prices in the near future.
“Some economists say housing prices in Sejong would rise because of lack of supply compared to rising demand,” said Song In-ho, a research fellow at the institute, by phone. “The core demand for residences in Sejong is not government officials, researchers or reporters - they’ve already been living there. Rather, residents from Daejeon, a metropolitan city within an hour by car, are attracted because jeonse and purchase prices in Sejong are much cheaper than in Daejeon.”
In terms of the jeonse, or lump sum deposit rental market, only 0.3 percent of the respondents said jeonse rates would drop in this quarter. About 84 percent said jeonse rates would rise. In the same survey last year, 81 percent predicted they would rise.
The prime reason is a diminishing number of jeonse rentals, the survey showed, with 48.8 percent citing it as a reason. Another 19 percent said the hike is because of low borrowing costs, following the Bank of Korea’s four interest rate cuts since July 2014.
In the midst of tough competition for jeonse units, eased restriction for mortgages will boost demand for purchase of newly-built apartments, the respondents said. About 38 percent said an increasing number of Koreans want to purchase a newly-built unit, and that would push up initial offering prices of new residences released in the fourth quarter.
The KDI report showed that newly-constructed residential apartments in the country in the fourth quarter rose at the fastest pace since 2000. This quarter, a total of 163,985 units of new apartments were put on the market, jumping from 110,377 units in the same period of 2013.
In total, Korea is expected to have about 490,000 new apartments this year, the report said, almost double the annual average supply of 270,000 between 2000 and 2014.
A glut in the housing supply would definitely trouble the economy, the report said.
BY KIM HEE-JIN [firstname.lastname@example.org]
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