Young South Korean shoppers test Yoon’s wish to solve affordability crisis | Investment News

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By Jihoon Lee and Cynthia Kim

SEOUL (Reuters) – Young South Koreans are buying homes in defiance of steep rate hikes that have once again highlighted a severe housing shortage, complicating President Yoon Suk-yeol’s plans to ease the crisis in the economy. housing affordability in Asia’s fourth largest economy.

Oh Ye-seul, a 26-year-old who works at a start-up in Seoul’s posh Gangnam district, is the kind of individual who finds little to no influence on Yoon’s pledges.

In March, when Yoon came to power amid anger over his predecessor Moon Jae-in’s failures to rein in property prices, Oh bought an apartment for just under 600 million won ( $466,236), about half an hour by subway from his office.

Such purchases, which a growing number of young Koreans are pursuing, are being made despite rapid interest rate hikes by the Bank of Korea and suggest the public remains skeptical of Yoon’s vow to ease an affordability crisis. finance that has escaped successive administrations.

Furthermore, it also raises wider economic implications as mortgage rates hit nine-year highs, adding to strains on households grappling with the world’s highest debt loads and a global price spike. for everything from gasoline to food to consumer goods.

While much of the buying is fueled by the fear of missing out on a property due to soaring prices, the long-term risk is of a sharp housing correction and a slowdown in consumption.

“The continued home buying by young people comes at a time of rapidly rising interest rates, so consumption could be hit as many will be forced to cut living expenses, Park Sung- said. woo, economist at DB Financial Investment.

“South Korean household debt is at dangerous levels, and we need to see a slowdown in home buying and mortgage growth to mitigate this risk.”

The total debt held by South Korean households, worth $1.5 trillion or 104% of the country’s gross domestic product, is higher than that of all 35 other countries tracked by the Institute of International Finance. .

For now, however, many young Koreans are continuing to buy real estate, even though the BOK is expected to raise borrowing costs further on top of the 125 basis point rate hikes announced since August.

Yoon has pledged to ease lending restrictions and provide 2.5 million apartments to ease an acute property shortage, including easing loan-to-value (LTV) restrictions from July.

But buyers like Oh, who pushed Seoul’s share of home buyers in their 20s and 30s to 43% in April, up for a second month from 36% in February, aren’t ready to give up. expect. In the central districts of Seoul, Jongno, Gwanak and Seongdong, more than half of the buyers belonged to this age group.

Real estate is one of the biggest wealth creators for South Koreans, with 73% of total household assets invested in real estate in 2021, according to government data.

Oh considers herself lucky to have secured a mortgage from a public lender that offers cheap, fixed-rate loans to first-time home buyers.

The poor performance of domestic and global equities, with the local benchmark KOSPI down 15% year-to-date, has also prompted Koreans to invest in property.

Oh said she wasn’t too worried about a housing correction, adding “there will be even more demand from first-time buyers for smaller apartments like mine once the regulations of borrowing will be relaxed”.

In fact, a BOK survey in May showed that South Koreans remained largely optimistic about house prices for the next 12 months.

Such attitudes towards home buying will be a test for Yoon’s government, which is trying to tame a hot market where average apartment prices have doubled to more than $1 million in metropolitan Seoul. during Moon’s five-year tenure, even as household incomes faltered. to keep up.

This has made home ownership unaffordable for many, especially first-time home buyers, with data from one of the country’s largest commercial banks, KB Bank, suggesting it now takes 19 years to buy an average apartment in Seoul for an average earner.

For Yoon, the promise to deliver millions of apartments faces practical hurdles, especially as soaring global inflation has sharply driven up construction costs and slowed many other planned projects. Moon’s administration did not acknowledge the housing shortage until the end of his five-year term.

“For President Yoon, it will be difficult to restore young people’s confidence in his policy initiatives, as previous policies made them feel left out of real estate market gains,” said Lee Da-eun, an analyst at Daishin Securities.

(Edited by Shri Navaratnam)

Copyright 2022 Thomson Reuters.

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