The Bank of Korea announced on Dec. 26 that the financial exposure of the real estate sector totaled 2,003.9 trillion won as of the end of September this year, up 6.5 percent from a year ago. The value including loans provided by financial institutions and credit guarantee institutions and the assets of real estate investment products topped 2,000 trillion won for the first time as the sector attracted an increasing amount of money amid low interest rates, a long-term economic recession, and an increase in labor costs and regulations. The ratio of the exposure to the nominal GDP rose to 105.1 percent as the prices of houses in Seoul and nearby areas jumped to result in more exposure.
The exposure includes 1,049.6 trillion won in household debt and 734.6 trillion won in corporate debt, which increased by no less than 36.6 percent in just one year. The investment products increased 11 percent to 219.7 trillion won, led by an increase in the number of real estate funds and REITs products. The exposure in the non-banking sector, which had been 32.6 percent at the end of 2014, reached 49.6 percent at the end of September this year. The risk-weighted percentage is 49.8 percent.
Experts point out that the floating funds amounting to 1,000 trillion won need to be turned into corporate investments by a change in policy direction. “In general, a credit crisis results from burst real estate bubbles and, as such, the government needs to keep a close watch on the possibility of a financial crisis from the real estate sector,” said Seoul National University economics professor Kim So-young.
The Bank of Korea also expressed concerns over corporate loans, which are about to break the 1,200 trillion won mark for the first time, and a rapid increase in the debts of those in their 60s and older.