The price-to-income ratio (PIR) in the Seoul metropolitan area was estimated at 10.4 times at the end of March, according to the Bank of Korea’s monetary policy report submitted to the National Assembly on Thursday. This figure is the highest since the first collection of related data, and is 8.6 times higher than that recorded at the end of March 2007 – the peak before the global financial crisis.
The price-to-income ratio is the length of time it takes for a household to buy a house by spending all of its annual income. Put another way, the figure of 10.4 means that it takes 10.4 years of annual income to buy a house in the Seoul metropolitan area.
The Bank of Korea believes housing supply concerns are one of the main factors driving up housing prices. A growing number of home buyers have pushed up house prices as new apartment units have shrunk despite rising demand from increasing one-person and two-member households, according to the central bank. This year’s new apartment units fell by 33%, from 417,000 in 2019 to 280,000.
The household debt-to-GDP ratio registered 103.8% at the end of last year, an increase of 12 percentage points from 91.8% two years ago, representing the second highest increase after Norway (15.4 points) among the 37 OECD members. At the end of 2020, only five OECD member states had a higher household debt-to-GDP ratio than South Korea – Switzerland (133.1%), Australia (123.2 %) and Denmark (115.9%), etc.
A large amount of funds flowing intensively into the real estate market can increase market fluctuations and reduce growth potential, BOK believes. “While financial imbalances have worsened over time, we are seeing a high level of internal weakness. Worse yet, any external shock can deteriorate the economy and weaken financial stability. “
Hee-Chang Park email@example.com