Property market slump to linger

By Kang Seung-woo

The chief of the financial watchdog said the sluggish property market and rising household debt could pose major stumbling blocks to Korea’s economic recovery.

“If the current housing market slump becomes long-term and the continued interest rate hikes are feared to worsen debt repayment abilities among low-income households,” Financial Supervisory Service (FSS) Governor Kim Jong-chang said in his speech at a reunion of Advanced Innovative Management Program (AIM) at the Korea Advanced Institute of Science and Technology (KAIST), Tuesday in Seoul.

He also said both the sharp fall in house sales and the rising number of unsold apartments are extending the slump in the real estate market and a steep decrease in home prices will cause trouble in the financial market, the health of household debts and the financial health of builders.

As of March 2010, local household debts totaled 660.6 trillion won ($564.15 billion), which was a high level and mainly caused by mortgages.

Mortgage lending represents more than 50 percent or 337.9 trillion won, of the total household loans, he said.

“Household debts are not likely to go insolvent in the near term, but a continuous decline of the property market and a rate hike can prevent households from repaying their debts over the long term,” Kim said.

As for the excessive inflow of foreign cash, he said, “Compared with advanced and developing countries, relatively larger funding came in, but we need to prepare ourselves for negative scenarios.”

He said that the FSS will strengthen its scrutiny of household debts and the ability of banks to manage risks down the road.