July 09, 2016 08:19
Record-low interest rates have made it more difficult than ever to strike it rich with financial investments, but some 70,000 Koreans nonetheless managed to join the ranks of billionaires in the last four years.
Investing in real estate used to be another way to a fortune, but now it is proving to be less and less lucrative. The number of real estate moguls has decreased while more people have become richer through inheritance.
KB Kookmin Bank on Wednesday published an annual wealth report which clearly showed a marked shift in investment patterns brought about by ultra-low interest rates, low economic growth and an aging society.
Rich Koreans are those with financial assets worth more than 1 billion won (US$1=W1,159). KB closely questioned 400 of them for the report.
◆ Polarization of Wealth
The number of wealthy Koreans grew from 142,000 in 2012 to 211,000 last year. The value of their financial assets surged from W318 trillion to W476 trillion over the same period. They account for a mere 0.41 percent of the population, but own 15.3 percent of private financial assets.
The figures may seem tame compared to the U.S., where the top one percent of the population own 43 percent of assets, but the gap is growing fast here. The proportion of assets owned by the richest four years ago was 13.8 percent.
The number of super-rich Koreans with assets of more than W20 billion grew 12.7 percent from 500 to 800, while the number of rich Koreans with assets of between W1 billion and W5 billion grew 10.2 percent from 135,000 to 199,000. Both the number and amount of assets grew 10 percent each year.
The self-assessment criteria have shrunk significantly due to low interest rates and a slow economy. Koreans now consider themselves rich if their assets total W7 billion, down from W10 billion in 2012.
"The self-assessment criteria encompass expectations of financial gains in the future. The fact that the bar has been lowered means more people feel it's less likely that they'll make a lot more money in the future," said Ahn Yong-shin at KB.
◆ Fewer Real Estate Moguls
Some 67 percent of the rich said it is difficult to make money from real estate investments, while 26 percent are not sure. Only 6.3 percent said it is still possible to strike it rich by investing in property.
Korea Appraisal Board data show land prices increased only 1.5 percent this year after growing around two percent from 2014 to 2015. Most expect the trend to continue.
Real estate assets are making up a smaller and smaller proportion of rich people's asset portfolios, dropping from 59.5 percent in 2012 to 51.4 percent this year, while financial assets grew from 35.6 percent to 43.6 percent over the same period. Park Gyu-bae at KB said increasing uncertainties are behind the waning preference for real estate.
"Uncertainties like low interest rates and low growth have caused many wealthy people to have a tough time choosing their investments. A growing number of wealthy people are selling their real estate because financial assets can be turned into cash much faster, so they will be more nimble when opportunities emerge in the future."
◆ Fewer Self-Made Billionaires
Some 58.3 percent of rich people believe that chances are low that their children will be wealthier than them, while only 11.8 percent feel otherwise. They are even more skeptical when it came to the possibility of getting rich by their own efforts. Seven out of 10 said it would be difficult for their children to get rich without their parents' help.
The proportion who grew rich through inheritance rose from 13.7 percent five years ago to 26.3 percent. In contrast, the proportion who made fortune through real estate investments more than halved from 45.8 percent to 21 percent. For the first time, people who inherited their wealth outnumbered lucky real-estate investors.
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