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INTERVIEW Property purchases by corporate sector will contain project financing, household debt risks: economist
Kim Wan-joong, chief economist at Hana Institute of Finance and Hana Bank / Korea Times file
By Lee Kyung-min
Heightened risks of real estate project financing and household debt can be reduced, if more private bodies and state-run organizations use their funds to buy real estate, an economist said Thursday.
“The project financing and household debt issues are interlinked,” said Kim Wan-joong, chief economist at Hana Institute of Finance and Hana Bank.
The project financing risks can become manageable by creating greater demand for real estate sales volume.
However, government support to facilitate the sales generated by project financing projects will accelerate and exacerbate the buildup of household debt. This is because the demand for property by households far outpaces that of institutions.
“One of the most effective ways to solve the problem is to allow corporate and state-run bodies to use their funds to buy real estate,” he said.
Equally important is extending government guarantees for real estate development projects as well as establishing an organization jointly operated by private companies, financial services providers and state-run organizations.
“The jointly run entity can set up and manage funds for the unsold housing properties, with the primary functions of buying real estate.”
Record-low borrowing rates, he said, enabled many to buy homes during the early onset of the pandemic. The rapid drawdown in the monetary easing cycle has since led to a higher interest burden and a corresponding decrease in the purchasing power of households.
Also soaring were insolvencies by low-credit, low-income borrowers, defined as those who have taken out loans from at least three lenders simultaneously.
“The financial authorities need to fortify the monitoring of the development in the household loan delinquencies, especially concerning the vulnerable groups of people. Individual credit rehabilitation and debt restructuring can solve the issue and give them another chance.”
The economist said that the country’s woeful fertility rate will not see a meaningful uptick, unless the government boosts the budget for child-rearing expenses and parental leaves.
He called for the prompt reversal of and remedy for the duality of the labor market, a longstanding problem for Korea, which is plagued by the rigidity of its labor market.
Korea’s high-paid regular workers are granted greater job security, whereas low-income irregular workers are vulnerable to layoffs and pay cuts.
“The total fertility rate in the third quarter of last year was 0.7. The number will continue on an accelerated downward spiral, unless countered by practical work-family policies, increase in the family budget, labor market reform and stable housing prices.”