Financial watchdog warns of dangers posed by massive household debt

  • 5 years ago
South Korea's financial regulator is warning the soundness of household debt in the country could become vulnerable FAST... due mainly to a dangerous combination of greater borrowing for real estate speculation and tumbling house leasing prices.
Kim Ji-yeon reports.
At a meeting late last week,... the Chairman of the Financial Services Commission, Choi Jong-ku, pointed to the size of the country's household debt, interest rate hikes and loans due to long-term home leases, or jeonse loans, as the major risk factors facing the economy.
Jeonse is a unique real estate arrangement in Korea where tenants live in a house or apartment for two or more years after paying a large lump sum deposit, which must be returned in full upon the end of the term.
Choi warned the country's jeonse system is increasingly becoming insolvent due to a combination of falling jeonse prices and expected rate hikes.
"Household debt, estimated at more than one-point-three trillion U.S. dollars, is placing an enormous burden on the financial system and the economy. We have to prepare for risks such as cases of leaseholders not being able to pay back the deposits due to plunging jeonse prices."

The average price of jeonse in Seoul started to fall in November of last year,... but rural regions have seen jeonse prices slump since April 2017.
The financial watchdog says it'll come up with countermeasures this year that'll limit the issuance of mortgage loans for speculative real estate practices... while encouraging corporate investments.
With this, Choi said the government aims to slow the growth of household debt to about five percent by the end of 2021.
Kim Ji-yeon, Arirang News.

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