Rich People With Just a House

Mr. Kim (55), who retired from his 20-year job at a major company two years ago, has a posh apartment worth over one billion won in Gangnam, Seoul. It is the end result of his investment strategy starting from his early years with his job that involved buying and selling bigger and bigger houses with his monthly wage, stock options, and severance payments. He started out as a renter and negotiated a lump-sum rent deposit in exchange for not having to pay rent.

However, the financial assets he has besides the house come out to merely 20 million won. As for the marriages of his son and daughter soon to come, both university students, Kim has a lot to worry about because he has been spending living expenses on his bank savings without having fixed income.

In the U.S., the term, “land rich, cash poor” has been common for a long time. It refers to financial difficulties that arise from having few available assets but a large amount of hard-to-dispose-of property assets like a house or land.

The Real-Estate Rich with Empty Pockets –

Ms. Lee (36), who used to live in Gangnam on a one-time deposit lease, bought an apartment worth 500 million won near her mother’s house recently. She and her husband put in all their financial assets to do so, and received a loan of 200 million won from a bank with the house bought as collateral.

She does not feel at home although those around her envy her “for succeeding in buying her own house.” Her husband’s monthly wage is less than 2.5 million won, and every month, up to two million won goes out to pay the principle and the interest.

“The Rich with No Cash” Is a New Trend Among Korean Households-

According to the Hyundai Research Institute, the average Korean household as of May possessed 76.9 percent of their total financial assets of 281.12 million won, on average, in the form of real estate. Dr. Lee Joo-ryang of the institute commented, “It is such a high number if you compare it with the most advanced countries like the U.S., which have less than half this ratio.”

Higher House Prices But Same Incomes-

The biggest reason for the increasing number of rich with little cash is because actual incomes have not increased much due to the long economic slump, despite soaring house and land prices over the past several years.

The Gross National Income (GNI) representing the actual purchasing power of people increased merely 2.2 percent per year on average from 2003 to last year. In addition, the burden of the Comprehensive Real Estate Holding Tax and other holding taxes increased with the launch of the current government.

The living standards of the “poor rich” are getting lower due to high prices.

Mr. Lee (37), who recently moved to Gangnam from Gangbuk, has felt financially burdened because his son’s day-care center fee is 500,000 won more expensive than the fee he paid in Gangbuk.

Lee said, “Many of my neighbors who hurriedly moved to Gangnam for their children’s education cannot even afford to buy furniture or household appliances.”