Cooling off neededThe government announced it will present a comprehensive policy package on Thursday to tackle the alarming household debts. That’s due to the soaring debts amid our overheated real estate market. Yet the public still cast suspicion on the success of the measure.
First of all, the Financial Services Commission, the Ministry of Land, Infrastructure and Transport and the Bank of Korea reportedly have trouble narrowing their gaps in real estate restrictions. While the financial commission and the central bank call for a strengthening of regulations on handing over ownership of apartments before residing there, the ministry vehemently opposes tougher restrictions fearing a rapidly frozen property markets. Given their different approaches, we can hardly expect effective measures to emerge later this week.
There is no time to waste in the face of the household debts which have reached a dangerous level. The total amount of the debts in the first quarter is more than 1,223 trillion won ($1.09 trillion). The share of household debts in families’s disposable income also reached 145.6 percent, the highest ever.
In addition, collective loans for apartments in redevelopment projects — the main culprit in the sharp increase in our household debts — swelled to 121.8 trillion won. As a result, market watchers come up with a dismal analysis that repercussions like decreased consumption have started to weigh down our lackluster economy.
Moreover, our real estate market long sustained by household debts faces another crisis. 60,000 apartments have not been sold yet in the first half of the year and apartment owners in some areas in the posh Gangnam District increasingly have trouble finding tenants due to the supply glut as seen in the new 700,000 apartments waiting for home buyers in the 2017-2018 period, the highest figure since the 1990s. If the real estate bubbles burst amid external shocks like the Federal Reserve Board’s interest rates hike, it could have an immeasurable impact on our economy.
To avoid a crash of our real estate market, the government needs to preemptively reinforce its management of household debts. Of course, it does not have to overreact to the market. But the government must warn market players to act prudently. It can consider the ideas of restricting the transfer of apartment ownership before residing and a stricter regulation on collective loans. Without such substantial content, we can hardly expect the government to address our overheated real estate market.
JoongAng Ilbo, August 24, page 30