Non-Gangnam home prices also increase

Seoul housing prices are showing troubling signs. The upward trend is spreading beyond the Gangnam area to less popular neighborhoods. There are even concerns that falling lending rates are reigniting the trend of leveraging all possible financial resources to purchase property. Amid this situation, a survey by an international organization found that Korea's household debt is the second highest in the world relative to the size of its economy. If rising house prices lead to increased lending, which in turn fuels further price increases, household debt could become a “time bomb” threatening the stability of the Korean economy.

According to the latest Institute of International Finance (IIF) report, Korea's household debt-to-GDP ratio stood at 91.7% in the fourth quarter of last year, ranking second among 38 countries. This is well above the global average of 60.3%. The only country with a higher ratio is Canada, at 100.6%. At the end of last year, household debt reached a record high of 1,927.3 trillion won, nearing the 2,000 trillion won mark. The balance of household loans across the entire financial sector, which had slightly declined earlier this year, rose to 1,672 trillion won last month—an increase of more than 4 trillion won in just one month. This was driven by banks loosening lending restrictions at the beginning of the year, amid falling lending rates and the overlap with the moving season.

Seoul's housing prices have been rising in tandem, especially since the Seoul Metropolitan Government removed 291 apartment complexes in the Jamsangdaecheong area (Jamsil, Samsung, Daechi, and Cheongdam) from the Land Transaction Permission Areas a month ago, raising concerns that household debt could soar. Apartment prices in the Jamsangdaecheong area rose by 3.7 percent, while prices in the three Gangnam districts recorded their highest increase in seven years. Prices have even begun to rise in the weaker neighborhoods of Nodogang (Nowon, Dobong, and Gangbuk) and Geumgwangu (Geumcheon, Gwanak, and Guro). The volume of Seoul apartment transactions reached its highest level in six months. When it was reported in January that the Seoul Metropolitan Government was actively considering lifting the Land Transaction Permission Area designation, critics warned that it would stimulate housing prices. However, the Seoul Metropolitan Government insisted that the areas could be redesignated if necessary. Given the adverse effects of an overheated real estate market on the broader economy, this was a hasty and complacent policy decision.

Rising house prices are bound to stir up anxiety among those without homes, further increasing household debt and making it more difficult for domestic demand to recover. Retail sales declined in all 17 provinces and cities last year as the slump in domestic demand persisted. If neither exports nor domestic demand can pick up, fears of a recession will grow. There should be no policy that stimulates housing prices and adds to household debt.