Stock and Real Estate Surge Worsens Asset Polarization... Widening Wealth Gap

Top 20% Average Net Assets 1.12 Billion KRW, Bottom 5.75 Million KRW
Net Asset Quintile Ratio Rises to 166.64 Times

Asset Polarization Likely to Worsen Due to COVID-19 Liquidity Concentration
"Difficult to Solve with Simple Welfare Policies... Need to Provide More Social Mobility Opportunities"

[Asia Economy Reporter Kim Eun-byeol] As asset prices such as stocks and real estate soar, the gap between those who have assets and those who do not is widening. Real estate prices are skyrocketing, especially for high-priced apartments in the Seoul metropolitan area, and the stock market has also surged with the KOSPI index surpassing 3000, expanding the wealth gap between the "haves and have-nots." The emergence of the new term "Byeorakgeoji" (a relative concept of a sudden rich person, referring to those who unknowingly experience an asset gap) reflects a self-deprecating reaction to the rapid rise in asset prices, highlighting the need for government consideration on this issue.

According to an analysis of the "2020 Household Finance and Welfare Survey" released by Statistics Korea, the Financial Supervisory Service, and the Bank of Korea, as of the end of March last year, the "net asset quintile ratio" was 166.64 times, an increase of 41.04 percentage points from the previous year (125.60 times). The net asset quintile ratio is the average net assets of the top 20% group (5th quintile) divided by the average net assets of the bottom 20% group (1st quintile). A higher figure indicates a larger gap in net assets between the upper and lower groups.

At the end of March last year, the average net assets held by the top 20% were 1,124.81 million KRW, while the average net assets held by the bottom 20% were only 6.75 million KRW. This means the gap between the upper and lower groups exceeds 1.1 billion KRW.

The widening net asset gap began in earnest from 2017. Looking at the trend of Korea's net asset quintile ratio, it rose to 181.44 times in 2012 when real estate prices surged, then steadily declined. It dropped to 93.15 times in 2014 but steadily increased again to 99.65 times in 2017 and 106.29 times in 2018.

This phenomenon is the result of the rapid increase in asset values for those who already own real estate or stocks. Although 62.3% of all households still have net assets below 300 million KRW, the proportion of households with net assets exceeding 1 billion KRW increased by 0.4 percentage points in one year to 7.2%. The proportion of households with net assets around 700 to 800 million KRW also rose from 2.4% to 2.7%. The recent surge in asset prices has provided an opportunity for the so-called "wealthy" to increase their wealth effortlessly.

This phenomenon likely intensified in the second half of last year. While the stock market declined in the first half due to the initial spread of COVID-19, the KOSPI index surged in the second half, and housing prices also rose more sharply.

The income gap, which the government is focusing on, narrows only briefly when welfare policies are introduced but appears to have widened since the COVID-19 pandemic. According to the Statistics Korea Household Trend Survey, the equivalized disposable income quintile ratio in the third quarter of last year was 4.88 times, higher than 4.66 times in the third quarter of 2019. Although the quintile ratio fell to 4.23 times in the second quarter of last year due to government disaster relief payments, which was lower than 4.58 times in the same period the previous year, the gap widened again once the effect wore off.

So far, there seems to be no effective way to curb the asset gap. While more than 3,000 trillion KRW of liquidity was injected during the COVID-19 response, the velocity of money circulation hit a record low of 0.62 in the second quarter. It is also difficult to withdraw money from circulation. The International Financial Center expressed concern, stating, "If liquidity is reduced to curb the bubble under the current circumstances, the real economy will face complete collapse, and income inequality is likely to worsen."

Professor Kim So-young of Seoul National University's Department of Economics commented, "Considering the significant rise in stock and housing prices in the second half of last year and the substantial increase in debt among the lower groups, it is likely that the quintile ratio has risen considerably."

He explained, "Ultimately, the asset gap is the result of income inequality accumulated over a long period, so to reduce the asset gap in the long term, income inequality must be reduced by changing the social structure." He added, "The government is trying to reduce income inequality through welfare policies, but this is not a problem that can be solved with minor welfare support. Creating more opportunities in education, employment, and entrepreneurship, and building many ladders that allow active movement between social classes, are ways to reduce such gaps."

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