Middle Class Enthusiastic over Debt Investment

There is a growing number of middle-class, white collar workers in their 30s and 40s suffering from debt due to speculative investments.

This is attributed to their dream of hitting the ultimate jackpot and wind up investing too much money in real estate and stock markets.

Instead of depositing their money in the bank, the middle class has become enthusiastic over high-risk, speculative investments. “If this abnormal trend becomes widespread, it could break the backbone of the economy,” experts said.

The Donga Ilbo conducted a survey of seven bank branches in Seoul apartment complexes where a number of middle-class white collar workers live, regarding collateral, credit loans, and changes in installment savings. It revealed that the total amount of installment savings has declined more than 30% in most branches over the recent few years. In particular, those living in apartments got a mortgage loan of 50 million to 200 million won according to the size of their apartments. There are a considerable number of those who pay off monthly interests with a third of their salary.

In the Apgujeong branch of a certain bank, the total amount of installment savings fell 30% to 170 billion won this year from 250 billion won three years ago. “The amount will fall more sharply when customers of three-year installment savings having interest rates of 7% withdraw their money,” said the bank. “There are few new customers for household installment savings except worker preferential installment savings for housing applications.”

New regular installment savings applications at Korea First Bank dropped to 3,505 accounts at the end of April this year from 12,832 accounts in January. Those of Woori Bank also fell to 52,545 accounts from 63,104 accounts the same period.

According to an analysis of mortgage loans by a bank branch in Sadang-dong, Seoul, those living in 19-pyeong-apartments received mortgage loans of an average 50 million won, those living in 25-pyeong-apartments with 75 million won, those living in 32-pyeong-apartments with 100 million won, and those living in 44-pyeong-apartments have mortgage loans of 175 million won.

In particular, most of those living in 40-pyeong-aparments or larger have reached loan limits (60% of the market price of their apartments). Moreover, 90% of total loan providers were paying interests with more than 30% of their salary.

A loan account that could be used in case of an emergency is also in demand. Another bank branch introduced its ‘best loan’ for VIP customers, in which customers can withdraw 5 million to 20 million won at any time. It sold 300 but about 1 billion won has already been withdrawn. “Customers only set the amount of loans,” a loan representative said. “They are waiting for a time to put the money into a housing application or to invest the money in the stock market. Therefore, the money currently amounts to nearly 2 billion won.”

A 38-year-old man, who works at a securities company, decided to sell his 32-pyeong apartment in Hukseok-dong, Seoul, and get a mortgage loan from his company and bank and an additional loan of 250 million won in order to buy an apartment in Banpo-dong, Seoul. If he buys this 16-pyeong-apartment, transacted at a price of 640 million won, he will be able to get a 40-pyeong-apartment for free after a few years.

“When I think about the interests of 1.7 million won a month, I can hardly go to sleep. But I made that decision because the overheated real estate market would persist for the time being,” he said.

Household loans declined after government measures to curb them in October last year. However, they saw growth from this February and surged by more than 700 billion won in April from 2.4 trillion won in March. According to the Bank of Korea (BOK), household debts compared with the GDP as of the end of last year reached 73.6% with the average of 29 million won for each household.

Goh Kyoung-bong, a psychiatrist at Yonsei University, said that white collar workers suffer from the fear that they cannot get beyond their middle class status and are thus looking for faster ways to strike it rich. “If such the trend spreads, the middle class is very likely to collapse when the bubble bursts,” he added.

In-Jik Cho Jin-Young Hwang cij1999@donga.com buddy@donga.com