Image: Reuters Berita 24 English - President Yoon Suk -intentions yeol's to solve a property affordability crisis in Asia's fourth...
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| Image: Reuters |
Berita 24 English - President Yoon Suk-intentions yeol's to solve a property affordability crisis in Asia's fourth-largest economy are hampered by the fact that young South Koreans continue to purchase homes despite hefty rate hikes that have once again highlighted a severe housing shortage.
Oh Ye-seul, a 26-year-old employee at a startup company in Seoul's affluent Gangnam neighbourhood, is the type of person for whom Yoon's promises hold little or no power.
Oh purchased an apartment in March for just less than 600 million won ($466,236), roughly a half-subway hour's trip from her office, when Yoon stormed to power amid outrage over his predecessor Moon Jae-failure in's to rein in rising property prices.
Such purchases, which a growing number of young Koreans are pursuing despite quick interest rate increases by the Bank of Korea, indicate that the public remains sceptical of Yoon's pledge to alleviate an affordability crisis that has eluded previous governments.
In addition, it has larger economic ramifications as mortgage rates have reached nine-year highs, adding to the pressures on consumers already burdened by the world's biggest debt burdens and a global increase in costs for everything from gasoline to food to consumer goods.
In spite of the fact that much of the buying is motivated by the fear of missing out on a property owing to increasing prices, there is a possibility of a significant housing correction and spending slowdown in the future.
"The ongoing acquisition of homes by young people is occurring at a time when loan rates are growing rapidly, thus consumption could be affected as many are obliged to reduce their living expenses." "According to DB Financial Investment economist Park Sung-woo.
"We need to see a slowdown in homebuying and mortgage growth to mitigate this risk, as household debt in South Korea has reached worrisome levels.
The total debt owned by South Korean families, amounting to $1.5 trillion or 104% of the country's gross domestic product, is greater than that of any of the other 35 countries monitored by the Institute of International Finance.
WEALTH CREATOR
For the time being, however, a large number of young Koreans continue to purchase real estate, despite the fact that the BOK is projected to raise borrowing rates further on top of the 125-bps rate hikes delivered since August.
Yoon has committed to lift credit limitations and supply 2.5 million units to alleviate a severe housing crisis, beginning in July with the easing of loan-to-value (LTV) restrictions.
But buyers like Oh, who have increased the number of homebuyers in their 20s and 30s in Seoul to 43 percent in April, up for the second consecutive month from 36 percent in February, are unwilling to wait. In the core neighbourhoods of Jongno, Gwanak, and Seongdong in Seoul, more than half of the purchasers were in this age bracket.
As of 2021, 73 percent of total household assets were invested in real estate, making it one of the largest wealth generators for South Koreans.
Oh feels herself fortunate to have obtained a mortgage from a state-run lender that provides low-cost, fixed-rate loans to first-time homebuyers.
The poor performance of domestic and global stocks, with the local benchmark KOSPI down 15% year-to-date, has given Koreans an additional incentive to invest in real estate.
Oh stated that she was not unduly concerned about a housing correction, adding, "Once borrowing laws are relaxed, there will be a greater demand from first-time buyers for small-sized flats like mine."
In fact, a BOK study conducted in May revealed that South Koreans remained largely positive about housing values over the coming year.
Such attitudes toward home purchases will be a test for Yoon's government, which is attempting to moderate a red-hot market where average apartment prices have doubled to Korea than a million dollars in metropolitan Seoul under Moon's five-year term despite stagnant household earnings.
This has made property ownership expensive for many, especially first-time buyers. According to KB Bank, one of the nation's top commercial banks, it currently takes an average income earner 19 years to purchase an average apartment in Seoul.
For Yoon, the promise to provide millions of flats has real obstacles, especially as increasing global inflation has dramatically increased building costs and slowed the progress of a great number of other planned projects. The Moon government did not recognise the housing crisis until the final year of his five-year term.
Analyst at Daishin Securities Lee Da-eun stated, "It will be difficult for President Yoon to regain the trust of young people in his policy objectives because earlier measures made them feel excluded from property market gains."
($1 = 1,286.9000 won)
