By Kim Tong-hyung
A bleak housing market and economic uncertainty have been forcing frustrated homebuyers to delay climbing the property ladder. They might want to consider scrapping their plans entirely as official figures show property often equals poverty.
For Koreans, buying a home has long been a sign of prosperity and financial security. But the reality has been rather different for millions of homeowners now facing a lifetime of indebtedness after borrowing heavily against the roofs over their heads in recent years.
According to data by the Bank of Korea (BOK) and Statistics Korea, the disposable income of the average homeowner was measured at 36.88 million won (about $33,000) for the whole year of 2011, representing a 9.3 percent increase from the previous year.
Debt increased significantly faster, rising nearly 13 percent during the same 12 months to 63.53 million won, underlining the fragility of family finances and its threat to the economy’s stability.
As a result, the debt-to-disposable income ratio among homeowners increased from 166.9 percent to 172.3 percent. The ratio reached a staggering 250 percent in Seoul and the metropolitan area, home to more than half of the country’s population and the center of speculative demand in boom years.
``It’s alarming that the rise in household income continues to lag behind the rate of gross domestic product (GDP). Debt is piling up and the cost of borrowing is going to let further air out of disposable income. Middle-class households that are dangerously on the edge could find themselves falling into poverty,’’ said Lim Hui-jeong, a researcher at the Hyundai Research Institute (HRI).
``With the economic climate worsening and instability continuing with consumer prices, many of the so-called `house poor’ could be forced to put their properties back on the market. However, as transactions evaporate in a deteriorating housing market, they will be forced to sell low on their homes to have any chance of finding a taker, which may trigger a vicious cycle that extends the housing market slide.’’
The number of homeowners who could be labeled as house poor, referring to those who were forced to cut expenses significantly to support the financial costs from home purchases, was at 1.57 million in 2010, the HRI said.
The increasing number of homeowners flirting with poverty paints a gloomy picture in a country that is beginning to pay massively for encouraging borrow-to-spend habits. By broader measurements, the consumer debt mountain is now scaled safely above one quadrillion won, meaning that people here owe more money than the economy generates in an entire year.
Lulled by better economic times and a bloating property bubble, Koreans engaged in a decade-long borrowing binge through the mid-2000s, driven by the blind faith that house prices would rise forever. That fantasy was shattered by Lehman Brothers, with the spiraling housing market trapping millions in negative equity.
Now the bills are due and families are struggling more than ever to repay their debt, evidenced by the larger proportion of income devoted to principle payments and interest.
Homeowners last year paid an average of 600,000 won every month for costs related to housing loans, a 25 percent rise from a year earlier, according to government figures.
Some blame policymakers for aggravating personal indebtedness by sustaining an environment of low interest rates in an attempt to inject life back into the property sector.
Despite the outrageous household debt total, the government in recent months has been pressuring banks to lower interest rates on loans to ease family burdens on servicing debt and easing property-related taxes to fix the dearth in home transactions.
Critics, who see another policy failure on the way, wonder whether the country will be better off if the government actually lets house prices fall rather than continuing futile attempts to artificially boost demand.
Such a step would benefit first-time buyers, who authorities repeatedly say deserve the most support, despite the skid in prices in the past couple of years, the majority of lower-paid workers remain shut out of the market.
And with an oversupply starting to factor in Seoul and the metropolitan area, it’s become questionable whether the housing market will ever recover from the financial crisis. Owning a house has become economically beneficial to a lesser number of people than before.