Housing market overheated, IPO nullifies efforts to reduce household debt

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Fueled by the panic buying trend in the local real estate market, as well as explosive interest in a series of mega-initial public offerings, South Korea’s family debt soared in July.

Household debt rose more than 6 trillion won ($ 5.2 billion), according to industry data on Tuesday, despite government measures to tighten bank lending.

Household debt outstanding – total financial loans plus credit card payment services provided to households – at five major lenders, including KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup, totaled 695.3 trillion won. at the end of July, up 6.29 trillion. more than in June.

This is despite government efforts to curb growing household debt by tightening lending rules.

Earlier in April, the Financial Services Commission, which makes the policy, decided to tighten the rules for the current debt service ratios, or DSRs, the maximum amount of credit loans allowed to individuals relative to their disposable income.

The borrower was required to pay 40 percent of the annual income if the borrower buys a home in certain regions, including Seoul and the surrounding area, but since July, the 40 percent DSR rule has been extended to those buying a home worth more than 600 million won in select regions.

The surge in local real estate purchases, coupled with the inflow of capital from retail investors into the IPO market, fueled the flames of rising household debt last month, industry sources said.

For example, the volume of home loans issued by five major banks increased by 3.8 trillion won in July from the previous month to 514.2 trillion, the sharpest increase this year.

Meanwhile, outstanding unsecured loans to individuals rose more than 1.8 trillion won in the same month to about 140 trillion won as more retail investors seek to borrow money for equity investments, including IPOs.

KakaoBank, South Korea’s largest internet bank, raised nearly 58 trillion won in public subscription deposits last Monday. On Monday, Krafton began a two-day public subscription to its IPO on Kospi on August 10, raising 1.8 trillion won in deposits in its first trading session.

The data showed that due to overheating of the real estate markets and IPOs, deposits at the five major banks last month totaled 624.1 trillion won, down 1.3 trillion won from the previous month.

By Choi Jae Hee (cjh@heraldcorp.com)





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