By Kim Jae-kyoung
Staff Reporter
Fears of another property bubble are growing, with ample liquidity supplied by the government and the central bank flowing into speculation into the local property market. Many individuals are pulling their money out of the stock market and moving to look for real estate, hoping for another property bubble.
Their logic is simple. They believe that if enough people believe in a pick-up in the property market, their money keeps it going and rising property prices support demand growth, which will end up creating another property bubble. This is a type of economic bubble occurring in real estate market, in which property prices rise above their true value and will continue to do so until prices go into freefall and the bubble bursts.
According to the Korea Financial Investment Association, the balance of customers’ deposits at local securities companies declined by 1.84 trillion won in June, compared with 298.9 billion won growth in May. The deposits jumped 1.33 trillion won in April and 2.64 trillion won in March.
Money market funds (MMF) also recorded an outflow of 12.67 trillion won last month, the biggest monthly outflow this year.
The local equity market experienced a sharp fall in trading volume. On the main bourse, a total of 397.3 million shares changed hands Friday, the lowest daily trading volume in four months since Feb. 3 when the volume reached 347.6 million shares. Retail investors have net sold 1.36 trillion won for the past six days.
``With the KOSPI walking sideways in the recent months, individual investors are pulling out of the equity market and turning to real estates for higher returns,’’ a market analyst said.
Recent data regarding the property market ― mortgage lending and real estate transactions ― suggest that idle money is now flowing into the property market from the stock market.
According to industry sources, the outstanding balance of mortgages at six major banks _ Kookmin, Woori, Shinhan, Hana, Korea Exchange Bank and Nonghyup ― jumped by 2.24 trillion won in June, compared with a 1.7 trillion won increase in May.
Real estate transactions are also on the rise. According to the Ministry of Land, Transportation and Maritime Affairs, the number of transactions of apartments in Seoul topped 10,000 in May, up from 9,911 in April, 7,833 in March and 4,495 in January.
Market analysts said that it is too early to conclude that idle money has been channeling into the property market but stressed that the government should keep a close eye on money flow to avoid another property bubble.
``Much of the idle money has not been invested and has flowed into asset markets. A recovery in the real estate market can help boost the economy,’’ another market analyst said.
``However, the government should remember that creating a bubble to support the economy at best brings some short-term benefits and more long-term pain,’’ he added.
The nation’s short-term liquidity or idle money is estimated to have exceeded the 800 trillion won mark due to the government’s massive liquidity supply and the central bank’s series of rate cuts.
Short-term liquidity refers to idle money in the market ready to invest elsewhere, including demand deposits, time deposits with a maturity of less than six months, certificates of deposits, repurchase agreements and money market funds among others.