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Tuesday, January 18, 2022

Many Koreans Spend Half Their Income Repaying Loans

Middle-class Seoul citizens who own their homes spend half of their monthly salaries servicing the loans they had to take out to buy them.

According to the Korea Housing Finance Corporation last week, an index, which gauges a houshold’s ability to afford a home, stood at a whopping 182 in the third quarter of this year, the highest since relevant statistics began in 2004. The index stands at 100 if a middle-income household spends 25 percent of its income to service mortgage loans, so a reading of 182 shows that they spend 45.5 percent.

When President Moon Jae-in took office in 2017, the index still stood at 110.3 but since then home prices have snowballed amid the government’s failed policies to rein them in. Kim Deok-rye, at the Korea Housing Institute said, “If housing costs becomes too big, disposable income inevitably shrinks, which then leads to economic contraction.”

A man looks at ads for rented homes near Chungang University in Seoul. /Yonhap

Household incomes did not rise this year but interest rates jumped due to the government’s attempt to clamp down on household loans. This has resulted in an increasing financial burden for households.

The median household income remained practically unchanged from W5.39 million in the first quarter of this year to W5.42 million in the third quarter (US$1=W1,188). But the housing loan interest rate increased from 2.73 percent to 3.01 percent, and the median price of an apartment in the capital as of November stood at W1.08 billion, up around W150 million compared to just a year ago.

An index, which measures a household’s ability to buy a home, fell to the single digits at 7.3 for the first time in the fourth quarter of 2020 and dropped even further to 3.8 in the third quarter this year. The figure means fewer than four out of every 100 homes in the capital can be purchased with bank loans that mature in 20 years.

Kookmin Bank said, “The inventory of apartments in Seoul that can be bought by median-income households has fallen from 145,000 in the third quarter of 2020 to just 54,000 in the same period this year.”

Market watchers said not only has it become tougher for people to afford their own homes, but the quality of life of median-income households is deteriorating now that so much of their money is tied up in servicing loans.

Shim Kyo-un at Konkuk University said, “There are almost no affordable homes left in the capital for middle class households and there are no more available loans to finance them. We will see more and more middle class households renting or moving out of the city to find affordable homes.”

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Michael Maren
Former marine biologist who likes to spend as much time in the tropics as possible, due to a horrible time I once had in Alaska. Brrrr.

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