Soaring House Prices and Growing Debt Burden... Is South Korea's Household Debt Alright Like This?

South Korea Has the Highest Household Debt-to-GDP Ratio Among 37 Countries
Experts Say "Stabilizing Housing Prices Is the Top Priority"

A loan counter at Hana Bank in Euljiro, Seoul. The photo is unrelated to specific expressions in the article. Photo by Moon Honam munonam@

[Asia Economy Reporter Heo Midam] As household debt in South Korea rapidly increases, the risk of it hindering national economic growth is growing. When household debt rises, households reduce consumption to repay interest and principal, which in turn negatively impacts domestic demand.

The sharp increase in household debt is linked to the repeated failures of real estate policies that caused a 'surge in housing prices.' As more citizens invested in real estate through 'Yeongkkeul' (borrowing to the limit) and 'Bittou' (investing with debt), household debt has reached a dangerous level. Experts emphasize that stabilizing housing prices downward is necessary to solve the household debt problem.

According to the International Institute of Finance (IIF) Global Debt Report on the 17th, as of the second quarter of this year, South Korea's household debt-to-GDP ratio was 104.2%, the highest among the 37 countries surveyed. South Korea was the only country among the 37 where household debt exceeded GDP. Following were Hong Kong (92.0%), the United Kingdom (89.4%), the United States (79.2%), Thailand (77.5%), Malaysia (73.4%), and Japan (63.9%).

The speed of household debt increase was also the fastest in South Korea. The household debt ratio rose by 6.0 percentage points compared to the second quarter of last year (98.2%). This increase was faster than in Hong Kong (5.9 percentage points), Thailand (4.8 percentage points), and Russia (2.9 percentage points) during the same period.

The root cause of the rapid surge in household debt in South Korea is related to continuously rising real estate prices. As housing prices keep rising, young people make reckless investments such as 'Yeongkkeul' and 'Bittou' to avoid becoming 'lightning poor' (suddenly impoverished), leading to increased household loans.

The IIF also stated in its report, "Along with rising housing prices, global household debt increased by $1.5 trillion in the first half of this year (January to June)," adding, "About one-third of the surveyed countries saw an increase in household debt-to-GDP ratios, with South Korea and Russia standing out."

In this context, real estate prices have surged since the inauguration of the Moon Jae-in administration. According to the real estate research firm Real Today, during the four years after the Moon Jae-in administration began (May 2017 to May 2021), the price of apartments in Seoul per 3.3㎡ rose by 86.5%. This was the highest increase among all administrations since statistics began in 2003.

View of apartment complexes in Seoul city from Seoul Sky, the observation deck of Lotte World Tower in Seoul. Photo unrelated to specific expressions in the article. Photo by Hyunmin Kim kimhyun81@

Excessive household debt ultimately leads to interest burdens that suppress citizens' consumption. The interest burden is also increasing for those who bought homes through 'Yeongkkeul.' In response, financial authorities are implementing stringent loan regulations to curb the rapid increase in household debt.

However, some voices call for practical and fundamental measures to control the rise in household debt. A 20-something office worker, Mr. A, said, "I gave up on owning a home a long time ago because housing prices rise every day. In the end, ordinary people have become 'debtors' because of housing. I hope housing prices stabilize quickly so that people can buy homes with just their salaries."

On real estate communities, netizens expressed opinions such as, "The real estate price bubble has essentially created household debt," "It's doubtful whether housing prices can fall in this situation," and "With housing prices rising like this, how can there be no debt? Controlling housing prices is necessary for young people to marry and to solve the low birthrate problem."

Experts also pointed out that continuously rising real estate prices have caused the increase in household debt.

Professor Kim Taegi of Dankook University's Department of Economics said, "When housing prices were stable, the term 'household debt' did not come up. Why would citizens buy homes otherwise? Because they think housing prices will keep rising, they buy homes even if they have to borrow money," adding, "If the government stabilizes real estate prices, concerns about household debt will decrease."

He continued, "If interest rates had been raised when real estate prices surged before the COVID-19 pandemic, household debt would have decreased. I regret that this was not done."

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