Housing Market Capitalization Drops by 343 Trillion Won... Real Estate Market Shaking 'National Wealth'

Last year, the smallest increase in South Korea's national wealth (國富) on record was largely influenced by a decline in housing prices. The total market value of domestic housing decreased by 342.8 trillion won, marking the second-largest drop since the 1997 IMF financial crisis and the largest decline ever recorded. As the proportion of real estate in national wealth continues to grow, analyses suggest that national wealth is increasingly influenced by the real estate market.

According to the Bank of Korea on the 22nd, the 'total market value of housing,' which combines residential buildings and their associated land, stood at 6209 trillion won last year, evaporating by 342.8 trillion won (5.2%) in just one year. In South Korea, annual apartment supply typically occurs, and apartment prices usually rise alongside inflation, making a decline in housing market capitalization rare. This recent decrease is the first in 25 years since the approximately 32.45 trillion won drop during the financial crisis.

Consequently, the national wealth growth rate last year (2.2%) also significantly declined. A Bank of Korea official explained, "The growth rate of national net assets last year was the smallest since statistics began in 2008," adding that "the core reason was the decline in real estate asset prices." This contrasts sharply with 2020-2021, when nationwide housing prices surged, causing household net assets to jump and national wealth to increase substantially.

In 2020, influenced by rising real estate prices, national wealth (17,722.2 trillion won) increased by 6.6% compared to the previous year, setting a record high. The upward trend in housing prices continued in 2021, with national wealth (19,808.8 trillion won) again rising significantly, achieving an 11.4% growth rate and breaking the record once more. During the same period, household net assets rose sharply from 462.97 million won in 2019 to 504.51 million won in 2020 and 543.01 million won in 2021.

As a result, analyses repeatedly point out that South Korea's national wealth is excessively concentrated in real estate. The share of real estate (land and buildings) in non-financial assets steadily increased from 74% in 2012 to 77.1% in 2021. By asset type, land and construction assets accounted for 88.7% of the total in 2021. Although both slightly decreased to 75.8% and 87.7%, respectively, last year when housing prices stagnated, they are likely to rebound this year.

Polarization caused by real estate is also a concern. According to recently released data on regional land asset growth rates as of the end of 2021, land price increases were concentrated in the Seoul metropolitan area: Gyeonggi Province (10.8%), Incheon (10.4%), and Seoul (10.2%). Seoul holds 3,061 trillion won, accounting for 28.9% of total land assets, followed by Gyeonggi Province with 2,713 trillion won (25.6%). Combined, Seoul and Gyeonggi Province represent 54.5% of the total.

Compared to major advanced countries, South Korea has a relatively high proportion of real estate in household assets. Housing accounts for the largest share at 51.0%, with other real estate making up 23.6% of the net assets of households and non-profit organizations. Cash and deposits constitute 20.4%. This indicates a strong preference for real estate. During real estate booms, household assets grow, but during downturns, bubbles burst and assets easily shrink. Last year, the net assets of households and non-profit organizations decreased by 318 trillion won, of which 303 trillion won was non-financial assets.

Since the global financial crisis, a prolonged low-interest-rate environment has fueled a real estate boom, significantly increasing household loans and emerging as a risk threatening the Korean economy. The Bank of Korea identifies household loans for asset investment purposes, such as housing, as a major cause of rising household debt, warning that "if the current growth trend continues, consumption may contract and growth rates may decline."

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