A ticking time bombThe Bank of Korea announced Thursday that our overall household debt reached 1,257.3 trillion won ($1.13 trillion) as of the end of June. The debt increased by a whopping 33.6 trillion won over the last three months. If that pace continues, we will have to wrestle with an additional debt of more than 100 trillion won this year. The debt has nearly doubled from 630 trillion won in the Roh Moo-hyun administration in 2007.
The problem is not the amount alone but the speed of increase. While our economy is expected to grow by slightly over 2 percent this year, household debt is poised to soar by 10 percent. The quality of the debt is also getting worse. Loans from the nonbanking sector, including consumer finance companies, rose by 10.4 trillion won this year alone.
But the government’s measures to tackle the swelling debt are mostly half-baked because they don’t levy tougher restrictions on the transfer of apartment ownership before residing or strengthen standards for group loans for apartments in redevelopment projects. We wonder if the administration has any true intention to rein in household debt.
Our government’s real estate policy has been focusing on easing various regulations since the conservative and market-friendly Lee Myung-bak administration, as seen in its decision in 2012 to remove restrictions on re-applications for apartment ownership and a measure in 2014 to relax regulations on the transfer of apartment ownership before residing, and an additional easing later of the loan-to-value (LTV) ratio and the debt-to-income (DTI) ratio to get loans. Former Deputy Prime Minister for the Economy Choi Kyung-hwan took the lead in easing those regulations to stimulate the market.
Now we must pay heed to a supply glut. In 2017 and 2018, nearly 700,000 new apartments — the largest since the 1990s — will be waiting for owners. In the first half of the year alone, the government gave permission for the construction of 350,000 new homes, the biggest increase in 25 years. No market can withstand an oversupply. Even apartment owners in some areas of the posh Gangnam District increasingly have trouble finding tenants. The likelihood of the U.S. Federal Reserve’s raising interest rate soon could further destabilize our property market.
The government must preemptively cool off our overheated real estate market for the sake of our struggling economy. Yet its measures to rein in overinvestment in the market lack any substance. The people will pay the price. The government must recognize a ticking time bomb.
JoognAng Ilbo, Aug. 26, Page 34