[News Focus] Household debt on the rise W516tr since 2015
The phenomenon was sparked by soaring house prices following a housing shortage and a strong rebound in Kospi despite still high infections from the novel coronavirus.
Although data for the fourth quarter has yet to be compiled, figures for the January-September period of last year suggest that more and more Korean households were active in borrowing, which was primarily aimed at investing rather than fundraising for living expenses.
According to the Bank of Korea, outstanding household debt – total financial loans plus credit card payment services to households – reached a record high of 1,682.1 trillion won (1.51 trillion dollars) in September 2020.
With the figure of 1,166 trillion won in September 2015, the outstanding debt held by the household sector jumped by 516,1 trillion won, or 44.2%, in just five years.
As Moon had continued to commit to stabilizing the housing market early in his tenure, a large portion of households reportedly delayed their home purchase plans.
But apartment prices in Seoul and major cities have risen 50 to 100 percent, sometimes more, in just two or three years, despite a series of government “anti-speculation” measures.
As a result, Koreans in their 20s and 30s rushed to buy homes, take out huge mortgages, or as many loans based on credit and other forms of financing as they could. It was based on their feeling that they might never be able to buy an apartment if they wait any longer.
“The prices of some apartment complexes in Sejong have soared up to 100% in just one year (between 2019 and 2020),” said a resident of the administrative town in her 50s.
Claiming that her apartment also had a similar price increase, the resident said she was sorry for the younger ones.
“Irrational pricing has caused a lack of motivation in the workplace and has hurt the value of work. “
In addition, opening stock trading accounts has actively spread to people in their 20s or 60s or older last year amid Kospi’s record performance thanks to the suspension of short selling by financial authorities since March.
Many of them are said to have invested in stocks by closing installment savings accounts or taking out loans or secured home loans.
In the Organization for Economic Co-operation and Development’s latest research on the ratio of household debt to disposable income for 33 members, Korea ranked sixth. The OECD compared figures for 2019 or 2018, without including data for four of its 37 members – Iceland, Israel, Mexico and Turkey.
Korea posted 191% of the household debt-to-disposable income ratio in 2019, an increase of around 30 percentage points from 2010.
This was in contrast to the debt-to-disposable income ratio of 107% in Japan and 105% in the United States.
Countries that posted a ratio of less than 100 percent, indicating relatively decent financial strength in their household sector, are Greece (98 percent), Germany (96), Austria (90), Italy (88), Estonia (76), Chile (73), Poland (63), Slovenia (55), Colombia (47), Hungary (42) and Latvia (41).
Korea recently overtook Luxembourg with 190% and Sweden with 188%, both of which recorded higher ratios.
By Kim Yon-se ([email protected])