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Main Contributing Factors - Past rising homes prices thus many bought at high price (show charts and evidence) - Took home loans to buy (High house hold debt) (show charts n figures) - Falling home prices due to the large inflow of supply in to the market (Low home prices and demand) o Large supply of government built public housing. However, the public housing are of similar quality to private housing thus acting to a certain extent like substitutes. (evidence of such schemes i.e. one mil units scheme) Issues to solve (summary of above) - High household debt - Inability to sell property and cover mortgage - Depressed residential property market and falling prices - Low demand/ transactions for residential property Policy Measures - What are they? - Successful or not? What worked and what didn’t? - What can be improved? o Bring in case studies and examples of SG practice.
Housing poor is classified as people who own real estate but is living in a state of near poverty because of it. According to Korea Today news in 2012, 33% of property owners are considered to be house poor. Korea’s household debt has grown more rapidly than its GDP and disposable income. From 1999 to 2010, Korea’s household debt has grown 11.7% a year on average, while its GDP and the disposable income have grown 7.3% and 5.7% a year on average, respectively1. Korea’s outstanding household debt increased 8.1% in 2011. Although this increase was lower than the increase in 2010, which was 8.7%, as the GDP and the disposable income did not grow enough (5.4% and 4.8%), the household debt to GDP ratio and the household debt to disposable income ratio increased from 2010 to 2011 (86.6% to 89.2% for GDP and 158% to 163.7% for disposable income). In the last decade, many Koreans in their 30s and 40s, encouraged by government policies and generous credits, have heavily borrowed to buy their homes2
Trends of Household Debt and strengthening plan for microfinance assistance (July 19, 2012), Financial Service Commission & Financial Supervisory Service. 2 According to the OECD statistics, the household savings rate (% of disposable household income) in Korea has plummeted from a world-beating 23.1% in 1993 to 3.5% in 2011 – one of the lowest among OECD countries.
. respectively.or. falling into the category of “House Poor”. Second. and the Expo 2012 Yeosu. construction of innovative cities. it may trigger a wave of insolvencies of financial institutions. there has been an increase in the number of new apartment homes. which forms the backbone of consumption. but those in provincial regions rose sharply. Given these circumstances. First. the trickle-down effects of the government`s restoration project on four major rivers.1 percent on average. The apartment price increases in provincial regions are obviously attributable to the launch of the new administrative city of Sejong.asp?volume_id=131&content_id=104424&categ ory=D Amid the prolonged slump in Korea`s real estate market. it may be assumed that many middle-class people in provincial regions are experiencing a real estate bubble in this election year like the one Seoul residents saw during 2002-2007. The apartment prices in five municipalities have risen a whopping 40.7 percent and 11. They obtained excessive mortgages during the housing bubble but are now struggling to service their debt. as the price of jeonse. the ominous buzzword "house poor" should merely be a fuzzy word from distant future or hearsay from the capital city.” who have little disposable income because they have to use all their money to pay rent. Some 1. the apartment market has been polarized. Source: Kyunghyang Shinmun. Swamped in heavy mortgage debts. What draws our attention is the polarization of housing market between the Seoul metropolitan area and provincial regions. Apartment prices in Seoul and Gyeonggi Province fell 6. demand for houses has been replaced by demand for rental properties. The “rent poor. after the bubble burst. or lump-sum deposit-based rental. while the apartment prices have dropped 0.S. has skyrocketed. The “house poor” refer to those who spend a large proportion of their income on mortgage payments and have trouble meeting other financial obligations. The middle-class households should be helped out of their liquidity trap in order to revitalize our economy and boost domestic demand. Due to fading expectations for a housing market recovery soon. are also financially strapped.16 million apartments were built over the past five years. 2012 http://www.43 percent.koreafocus. “house poor” and “rent poor” individuals have emerged as a major social problem. the house poor and the rent poor belong to the middle class. with those in Busan jumping up to 56. the good performances of exporting companies in provinces owing to a weak won.29 percent during the same period. December 19.9 percent. They are forced to spend most of their discretionary income on rent or borrow heavily to pay for rent.Many of them are reported to have been struggling to make their mortgage payments. Pyeongchang`s successful bid to host the 2018 Winter Olympics. But their falling buying power has actually caused a cash crunch. To all outward appearances. To people in provincial regions. If their loans turn sour due to household income reduction or job loss.kr/design3/Society/view. those in their 30s and 40s are the most vulnerable group signaling that increase in their debt burden would trigger an onslaught of bankruptcy much like the housing crisis in the U.
They cannot be the fundamental solutions. The lack of policy consistency and durability has created enormous confusion among the people.koreafocus. January 18.Source: Korea Economic Daily. We hope Park`s government will secure the trust of the market and guarantee policy consistency by implementing effective housing policies. The public organizations can raise funds by using the purchased stakes as collateral and issuing asset-backed securities to financial companies and pension and funds operators. Korea`s real estate policy has been shaken whenever a new government arrives. Reflecting the recent demographic changes and smaller household sizes.asp?volume_id=135&content_id=104481&cat egory=B Policy Measures and Recommendations A recovery of housing transactions is crucial. . not to mention the construction industry workers. In the real estate market. We expect that President-elect Park will contribute to upgrading the Korean people`s residential welfare by stabilizing the market. peanut house and miniature house are among the examples.kr/design3/Economy/view. including interest payment for investors. The government`s real estate policies including those concerning the housing problem can have considerable ripple effects on the entire national economy. Under the tenant-friendly jeonse system. The level of ripple effects is particularly high in Korea where houses and residential real estate account for nearly 70 percent of households` total assets. Silver house. For that reason. President-elect Park has repeatedly said that the broad focus of her housing policy will be shifted from mass supply and development projects to improving housing welfare. President-elect Park Geun-hye has promised to introduce a so-called “stake sale system” to help the heavily indebted house -poor households.000 happy houses on artificial land and sell them at half the market prices.” The local housing market has now reached a stage where a simple supply increase alone cannot satisfy market demand nor revitalize housing transactions.or. Park`s campaign promises can be seen as desperate measures to help the house poor and rent poor. the types of housing demand have been gradually diversified and segmented. Park`s campaign pledges for the rent poor can be summarized as “happy house” and “tenant friendly jeonse. It will take a very long time before the support measures can produce substantial effects. there has been constant discord between “winners” and “losers” and between “haves” and “have -nots. almost all people can be considered market participants and their interests are closely intertwined. Nevertheless. 2013 http://www. homeowners will be given the option of taking out loans and saddling their tenants with the interest payments.” She promised to build about 200. The public entities can also collect rent over the sold stakes from the house poor to pay operating expenses. The stake sale system aims to let the financially troubled homeowners sell off shares in their properties to designated public organizations and use the revenues to repay parts of loans from financial companies.
In addition. government is extending large sums of money to both homeowners and banks as an incentive to adjust private sector loans. rather than resorting to extreme . Housing prices plunged by more than 30 percent. Even part of the loan principal was forgiven.S. housing finance market. bank loans typically match up to 60 percent of the value of the home.asp?volume_id=135&content_id=104481&cat egory=B A string of policy measures have been announced to help the house poor. After the global financial crisis erupted. The government should help those with income above a certain level restructure their mortgage by revising the lending terms and other methods so they can service their debt on their own.S.koreafocus.Source: Korea Economic Daily. In the U. They took out high mortgages during the housing bubble but are now struggling to service their debt amid sinking housing prices. which depends on the market to function rationally. including those who are jobless or those who hold subordinated loans. igniting a surge in home foreclosures.S. 2013 http://www. we should take a more careful approach with government support. As far as the bank is concerned. it is more advantageous to rent the home back to its former owner. Should the lender take over the house from the owner and rents it. rather than sustain a 20 percent loss. Let`s suppose that a person buys a house by borrowing 90 percent of the purchase price and the home price falls 30 percent. One of the reasons is because the U. That`s why sale and lease back and other policy measures meant to support the house poor cannot be easily adopted by individual banks. the bank suffers a 20 percent loss. the U. it is difficult to expect that the former homeowner who defaulted on interest payments would faithfully pay the monthly rent. It also is backing consulting services and mortgage relief plans and other services in order to help financially struggling homeowners. What is necessary is the government`s role as a control tower. Such moves suggest that the administration believes an escape from the phase of market slump is beneficial to all concerned parties. This year. the loss would be reduced by the amount of the rent.kr/design3/Economy/view.” But progress has been slow due to sporadic discussions. January 18.S. It may be difficult to reach market or social consensus so the measures remain untested. If the homeowner gives up the property. The lender may also extend the mortgage loan and recover as much money as possible. housing market plummeted. it is more advantageous to eliminate their loan risks through an auction. property buyers can usually borrow more than 90 percent of the value of the home. Our mortgage relief policy should be focused on supporting the elderly and the vulnerable classes who face bleak prospects on future income. homeowners and the government. home prices and sales are headed upward. the Obama administration has drafted several programs to meet various demands from consumers. the lender`s outlay is still recovered. From the standpoint of banks. even writing off part of the principal. Even if the house price falls 30 percent. instead of being utilized as a general solution. government has provided extensive mortgage support.or. Banks should also be ready to share the risk of bad loans as part of their social responsibility. a homeowner is entitled to immunity over mortgage loans if he or she agrees to give up the property. the U. or a massive infusion of funds. In Korea. Unlike the United States. including the market. Proposed support measures for the house poor include “sale and lease back” and “trust and lease back. The U. Take a look at the United States. In addition.S. What is useful in this situation is a case analysis. a term that refers to those who must pay so much on their mortgage that they have little left for other financial obligations. real estate market has shown signs of recovery. Even if a problematic home is bought by its creditor bank and rented out.
Boosting measures having some effect The housing market shows clear signs of bottoming out. according to data released by the Korea Appraisal Board (KAB).S. too. citing the latest home transactions figures In line with the pickup in trade volume. Nevertheless. This tax break is available until the end of the year.503 houses changed hands in April across the country. Korea’s unique rental system." Hyun told a meeting with other policymakers. Jeonse. there is a controversy over the U.5 percent from a year before. typically after two years. Of course.11 percent on average as of Monday. the weekly sales price of apartments nationwide rose by 0. Tenants get the money back with no interest when the contract expires. with three key indicators ― trade volume. with the imputed interest considered as rent. are also on the upward trend. a total of 79. "The housing market has been showings signs of steady improvement since the announcement of those measures. That`s probably because a value judgment and social consensus over the fairness and efficiency of the state support program has been reached. Friday. In Korea. mortgage relief plan. The change came because of a growing number of people seeking to purchase homes returned to the market following the announcement of a government stimulus package on April 1. Jeonse amounts. sales prices and rent ― pointing to an upturn in April. we wish politicians will take the lead in producing a social consensus over how to support the house poor. as part of their efforts to secure new customers and future growth. The lenders should assist the house poor. Thursday.measures and canceling loans to eliminate risk. .800) from acquisition tax when they purchase a house worth less than 600 million won and less than 85 square meters. The owners of multiple homes were also exempted from paying the tax. Infrastructure and Transport. is based on a lump sum deposit a tenant payment to their landlord at the start of a rental contract. On Wednesday. up 17. another market indicator. According to the Ministry of Land. It was the eighth straight week of increases. government has maintained a policy of greatly expanding the number of beneficiaries. Boosting Measures The package centers on tax breaks for homeowners and control of the supply of new homes to keep prices from falling The government exempted first-time homebuyers with a combined annual income of less than 60 million won ($53. Deputy Prime Minister and Strategy and Finance Minister Hyun Oh-seok said that the housing market is showing signs of recovering. improving stability and sustainability of home-related loans and rescuing financially struggling households from the debt trap. the U.S.
” Park warned there are still risky factors to consider in deciding whether to buy homes. Seoul.000 and maintain Buy on the counter Indicators are rising from core area in metropolitan market (1): Price Metropolitan housing prices are recovering in terms of week over week. With such an increase. Korea’s metropolitan housing market is recovering. The Gyeonggi price index also recovered by 0.4%. The minister added that the recovery in the housing market will likely gain more momentum in the months to come as the promised tax benefits started to go into effect. Seoul apartment prices rose 0.6% and Incheon increased 0. This is attributable to a bouncing back of sentiment after approvals from the National Assembly on housing measures on 1 April and BOK’s rate cut. the average jeonse price was equivalent to over 60 percent of the house price overall. We think resilient fundamentals such as tight demand/supply and investment attractiveness have started working.4% in the same period. promoting tenants to move toward purchasing their own homes. on a week over week basis. We are witnessing positive weekly price changes for the first time since March 2011. Hyundai Development is the only direct beneficiary of this recovery. We believe housing price indices will further pick-up in the coming months with pending legislations approved by the National Assembly Apartment prices in 3-Gangnam district displaying +0.6%.And the nationwide jeonse charge on Monday climbed by 0. “And it’s cautious to say the increase in apartment prices there is attributed to the government’s stimulus package. 0. the affluent southern Seoul area with a number of old apartments is where a land development project will take place under the city government. “For instance. “And if the average jeonse price continues to rise like that. We raise our target price to W30.” he said. the KAB said. The weekly apartment price index has shown slight improvement over the past few weeks. “The stimulus package is definitely a positive impact on consumers who are now relieved from anxiety in spending their money on real estate. a real estate team head at KB Kookmin Bank. Incheon and Gyeonggi prices have risen 0.” said Park Won-kab. . Metropolitan housing prices recorded negative mom growth for 23 consecutive months since June 2011. respectively. Mom growth of secondary housing prices in other regions is at its trough and will rebound in the second half of 2013.” Metropolitan housing market has entered recovery phase .5% from the bottom in 1Q13. since the trough in housing prices in March 2013. turned positive just before the announcement of the housing boosting measures in April. Weekly housing price index has shown improvement over the past few weeks.2% mom as of April.14 percent on average from the previous week. Housing price index growth. it is very likely that consumers will spend their money to buy homes.5% and 0. an expert said. Negative growth for the metropolitan area has slowed down to -0. We believe this situation should spread to other areas in the metropolitan region thanks to tight demand/supply and positive sentiment.1% mom in April for the first time since November 2011.Based on indicators and our channel checks.
8% yoy for nationwide. however. BOK cut the base rate to 2. The number of unsold homes nationwide fell 6% since the beginning of the year. housing prices remained flat qoq.Local news reported signs of housing price recovery for several apartments in the Seoul area. This is the biggest amount since December 2012 when the housing-related tax exemption expired We believe growing mortgage loans is a sign of increasing property transactions and healthy sentiment. or 7% up from the trough. This is for the first time since November 2011. but rapidly jumped 156% to 69. Jamsil Jugong #5 prices rose an average 3% qoq. National Assembly passed housing-related laws and BOK cut the base rate The National Assembly passed two legislations—acquisition tax exemption and capital gain tax exemption—in April after the announcement of the housing boosting package.070 units. respectively. We believe the base rate cut. or 16% up from the bottom. All figures are based on real transaction data from the government. Gaepodong Jugong #1 apartment prices rose an average 11% qoq. Mortgages increased W3.2tr increase in the month of April alone.529 units in April from 27. By region. Further approvals are necessary: lifting price cap and heavy capital gains tax Two legislations—the lift on pre-sale price cap and heavy capital gains tax ease for multiple home-owners—will be submitted to the National Assembly next quarter. increased 10% mainly due to sudden increase in housing supply of 15. Transaction yoy volume growth turned positive in March 2013 after recording 13 consecutive months of negative growth since October 2011. metropolitan unsold homes fell 3% to 70.2tr in the month of April alone. mortgage loans have shown W3.4% yoy increase for the metropolitan area.4% yoy compared to 2. Additional capital gains tax exemption for corporates will also be raised. For example. Nationwide transaction volume in January was a mere 27. transaction volumes have displayed meaningful recovery. . Housing boosting measures have definitely improved monthly transaction volumes. In addition.222 units in 2012 from 8. Seoul and Gyeonggi showed the biggest declines of 7% and 5%.070 units in January. We believe positive sentiment on real estate policy has stimulated transaction volume.869 in 2011. or up 6% from 2H12. We believe deregulation sentiment on the property market over the past few months has invigorated housing price increase Indicators are rising from core area in metropolitan market (2): Transactions As well as housing prices. Incheon unsold units. As of March. For Daechi Eunma apartments. April transaction volume recorded a 12. „ Mortgage loans increase In addition to favorable housing policies and base rate cut.633 units. coupled with the housing boosting measures.5% last week. Metropolitan transaction volume in April increased 12. We believe the National Assembly will approve pending legislations next month for the sake of policy consistency. Metropolitan transaction volume rapidly increased to 69. In addition.529 units in April. should further invigorate the sluggish property market in the coming months. An increase in mortgage loans is further evidence of recovering sentiment.
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