Real Estate Finance Increased by 500 Trillion Under Moon Administration... Approaching 2300 Trillion

Housing Prices Surge by 210 Trillion Won in One Year... Concerns Over Real Economy Trigger

[Asia Economy Reporter Kangwook Cho] Since the Moon Jae-in administration took office, the amount of money flowing into the real estate market has increased by nearly 500 trillion won, reaching a total of nearly 2,300 trillion won. In particular, amid low interest rates and a continuous rise in housing prices, the amount surged by more than 210 trillion won in just the past year. As a result, concerns have been raised that if housing prices plummet or interest rates rise, this could lead to insolvency and act as a trigger for the real economy.

According to the Bank of Korea's "2020 Second Half Financial Stability Report" released on the 7th, real estate financial exposure stood at 2,214.9 trillion won as of the end of September last year, marking a 10.5% increase compared to the same period the previous year. The real estate financial exposure for the same period the previous year was 2,003.9 trillion won. This means it rose by more than 210 trillion won in just one year.

Real estate financial exposure refers to loans to households and real estate-related companies, as well as funds invested in real estate-related financial investment products. It increased from 879.7 trillion won in 2010 to surpass 2,000 trillion won for the first time last year.

The problem is that despite the current government’s all-out efforts to "control housing prices" by implementing more than twenty real estate measures, money continues to flood into the real estate market. Over the past year, 211 trillion won flowed into the real estate market, increasing by 52.75 trillion won per quarter. Arithmetically, by the end of last year, a total of 2,270 trillion won was accumulated in the real estate market. Compared to the end of 2017 (1,792 trillion won), shortly after the Moon Jae-in administration began in May 2017, this represents an increase of about 480 trillion won.

In particular, since the current administration took office, the trend of individuals borrowing to buy homes has intensified, leading to a greater increase in funds flowing into the real estate market over the past three years. The growth rate of real estate financial exposure rose from 7.0% in 2018 to 7.7% in 2019, and surged to 10.5% in the third quarter of last year, entering double digits. Moreover, housing-related loans such as mortgage and jeonse (key money deposit) loans steadily increased, with household loans accounting for 1,133.7 trillion won (51.2%) of the total exposure as of the third quarter last year, exceeding half. This is 1.4 times the corporate loans (816.4 trillion won, 36.9%).

'120 Trillion' Commercial Real Estate Loans, Concerns Over Insolvency Due to Rising Vacancy Rates

The sector considered the biggest risk in the domestic real estate market is commercial real estate. According to the Financial Supervisory Service, the balance of real estate and rental business loans among corporate loans by domestic banks was 174.5124 trillion won at the end of September 2018, 191.307 trillion won at the end of September 2019, and 209.7494 trillion won at the end of September last year, showing a sharp annual increase.

The Bank of Korea already warned in the first half of last year that the domestic commercial real estate market was showing signs of the end of a boom period. It also estimated that if rental yields and price declines materialize, a loan loss provision of about 2.6 trillion won would need to be set aside.

Warnings have also been issued overseas. In an October report last year, the UK economic analysis institute Oxford Economics diagnosed that commercial real estate prices in countries such as Korea, the United States, and Australia could crash, causing severe loan loss damage to banks.

Senior Research Fellow Byungho Seo of the Korea Institute of Finance pointed out, "The 120 trillion won scale of commercial real estate loans is highly likely to become insolvent due to rising vacancy rates," adding, "If deferred loan defaults such as small business loans also materialize, loan loss costs could surge."

This content was produced with the assistance of AI translation services.