It has been revealed that it takes more than 10 years’ annual salary as a whole to buy a house in the Seoul metropolitan area. Added to this, South Korea ranked 2nd highest among the OECD member states in terms of the increase rate of household debt compared to GDP due to the sharply upward trends of housing prices and household loans.
The Price Income Ratio (PIR) in the Seoul metropolitan area was estimated at 10.4 times as of late March, according to the Bank of Korea’s Monetary Policy Report submitted to the National Assembly on Thursday. The figure is the highest level since related data were first collected, and is 8.6 times higher than that recorded in late March 2007 – the peak before the global financial crisis.
The Price-to-Income ratio is a period that it takes for a household to buy a house by spending all its annual earnings. That is, the figure of 10.4 means that it takes 10.4 years’ annual earnings to buy a house in the Seoul metropolitan area.
The Bank of Korea assesses concerns about housing supply as one of the biggest factors in rising housing prices. An increasing number of home buyers has driven housing prices upward as new apartment units have decreased despite increasing demands due to the rise of single-person and two-member households, according to the central bank. This year's new apartment units decreased by 33 percent from 417,000 in 2019 to 280,000.
The household debt ratio compared to GDP recorded 103.8 percent as of the end of last year, an increase of 12 percentage points from 91.8 percent two years ago, showing the 2nd highest increase following Norway (15.4 percent points) among the 37 OECD members. As of late 2020, only five OECD member states had a higher household debt ratio compared to GDP than South Korea did – Switzerland (133.1 percent), Australia (123.2 percent) and Denmark (115.9 percent), etc.
A large amount of funds flowing intensively into the real estate market may increase market fluctuations and make a dent on growth potential, expects the BOK. "As financial imbalances have deepened over time, we see a high level of internal weakness. What's worse, any external shock may deteriorate the economy and dampen financial stability.”
Hee-Chang Park firstname.lastname@example.org