By Choi Sung-jin
Businesses and self-employed people borrowed more than 160 trillion won ($144 billion) from financial companies in the first half of this year, hitting a record-high level, the Bank of Korea said Monday.
As a result of the government's policy to bolster the economy by heating the property market, real estate-related loans surged 56 trillion won over the past three years, accounting for a sharply larger share in total industrial borrowing and resulting in a serious strain on the lending market.
According to the central bank's economic statistical system, out of the 970.68 trillion won in outstanding loans extended by banks, savings banks and mutual financing institutions as of June 30, real estate-related loans were 160.15 trillion won, or 16.5 percent of the total.
The outstanding loans, which stood at 149.96 trillion won last Dec. 31, increased 10.19 trillion won in the first six months of this year to hit the highest level since 2008, when the BOK began to collect related figures.
Loans to help finance real estate business had been sluggish since the 2008 global financial crisis, but began to recover in the second half of 2013 and have since grown for 13 consecutive quarters. They have increased 56.4 trillion won in the past three years, representing more than a third, or 35.7 percent, of the 158.63 trillion-won increase in total industrial borrowing during the period.
All this was due to the Park Geun-hye administration's policy to overheat the property market. In August 2014, the government eased the two major real-estate regulations of loan-to-value (LTV) and debt-to-income (DTI) ratios, and has since implemented other policies to keep the real estate market bullish.
As a result, new mortgage loans extended by banks surged more than 365 trillion won between August 2014 and the first half of this year with real estate-related loans emerging as the fuse of the household-debt time bomb.
Also affected by the government's real estate policy, housing transactions totaled a record 1.19 million, the highest since officials began to release relevant statistics in 2006. According to the central bank, the share of loans for the real estate and rental business, which had stood at 13.1 percent of the total until the end of 2012, continued to rise to 14.8 percent in 2014, 16.3 percent in 2015 and 16.9 percent last year.
There are voices expressing concerns about the concentration of real estate loans. The "abnormal boom" of property market amid the overall economic slump of less than 2-percent growth could work as a time bomb if the economy fell further, experts said.
According to the Hyundai Research Institute, the domestic real estate market peaked in mid-2015 and has been in retreat since. Noting that the real estate market is booming only in Seoul and its vicinity, the think tank said that when supply exceeds demand in the future, there might be a massive increase in unsold apartments.
With not only businesses but self-employed and individual businesses jumping into real estate and rental businesses, any abrupt cooling of the property market would lead to an enormous amount of bad debts, the experts warned.
"It is a serious problem that loans are being concentrated in real estate and rental businesses while those for science, research and information service sectors are relatively sluggish," a member of the central bank's Monetary Policy Board was quoted as saying at a meeting on Sept. 9. "If the real estate market sags, it might not only harm financial stability but also aggravate the slump of overall economy."
Businesses and self-employed people borrowed more than 160 trillion won ($144 billion) from financial companies in the first half of this year, hitting a record-high level, the Bank of Korea said Monday.
As a result of the government's policy to bolster the economy by heating the property market, real estate-related loans surged 56 trillion won over the past three years, accounting for a sharply larger share in total industrial borrowing and resulting in a serious strain on the lending market.
According to the central bank's economic statistical system, out of the 970.68 trillion won in outstanding loans extended by banks, savings banks and mutual financing institutions as of June 30, real estate-related loans were 160.15 trillion won, or 16.5 percent of the total.
The outstanding loans, which stood at 149.96 trillion won last Dec. 31, increased 10.19 trillion won in the first six months of this year to hit the highest level since 2008, when the BOK began to collect related figures.
Loans to help finance real estate business had been sluggish since the 2008 global financial crisis, but began to recover in the second half of 2013 and have since grown for 13 consecutive quarters. They have increased 56.4 trillion won in the past three years, representing more than a third, or 35.7 percent, of the 158.63 trillion-won increase in total industrial borrowing during the period.
All this was due to the Park Geun-hye administration's policy to overheat the property market. In August 2014, the government eased the two major real-estate regulations of loan-to-value (LTV) and debt-to-income (DTI) ratios, and has since implemented other policies to keep the real estate market bullish.
As a result, new mortgage loans extended by banks surged more than 365 trillion won between August 2014 and the first half of this year with real estate-related loans emerging as the fuse of the household-debt time bomb.
Also affected by the government's real estate policy, housing transactions totaled a record 1.19 million, the highest since officials began to release relevant statistics in 2006. According to the central bank, the share of loans for the real estate and rental business, which had stood at 13.1 percent of the total until the end of 2012, continued to rise to 14.8 percent in 2014, 16.3 percent in 2015 and 16.9 percent last year.
There are voices expressing concerns about the concentration of real estate loans. The "abnormal boom" of property market amid the overall economic slump of less than 2-percent growth could work as a time bomb if the economy fell further, experts said.
According to the Hyundai Research Institute, the domestic real estate market peaked in mid-2015 and has been in retreat since. Noting that the real estate market is booming only in Seoul and its vicinity, the think tank said that when supply exceeds demand in the future, there might be a massive increase in unsold apartments.
With not only businesses but self-employed and individual businesses jumping into real estate and rental businesses, any abrupt cooling of the property market would lead to an enormous amount of bad debts, the experts warned.
"It is a serious problem that loans are being concentrated in real estate and rental businesses while those for science, research and information service sectors are relatively sluggish," a member of the central bank's Monetary Policy Board was quoted as saying at a meeting on Sept. 9. "If the real estate market sags, it might not only harm financial stability but also aggravate the slump of overall economy."
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