Young Koreans' Home-Debt Burden Soars

Surging apartment prices have sent the debt burden of young homebuyers sky-high.

According to Shinhan Bank, the average monthly income of indebted households last year was W5.21 million, up 3.1 percent from 2018, but their average debt load surged 40.2 percent to W102 million (US$1=W1,229). That means each household owes 20 times the size of their monthly earnings. The proportion of indebted households also increased from 57.2 percent to 66.7 percent over the same period.

"At this rate, households are expected to face increasing difficulty in repaying their loans," the bank warned in a report. It gathered the data by surveying 10,000 economically active people aged 20 to 64 across the country last September and October.

The report shows that 41.1 percent of people who bought homes were in their 20s and 30s and they cost an average of W364 million, up a whopping W33.5 million from the previous year. Their average debt load stood at W107 million, up W49.6 million over the same period.

In fact, 89.8 percent of people in their 20s and 30s who bought apartments borrowed money, compared to the average across all age groups of 79.1 percent. The average debt taken out by young people was W167 million, compared to the overall average of 143 million.

They therefore paid W800,000 a month on average to service their debt, which means they will have to keep paying that amount for 17 years and four months. Fortunately for them, the average value of the property they purchased has since already jumped 39 percent to W507 million.

But rising prices have forced many people who do not own their homes delay buying one. The bank found that only 10.8 percent of Koreans in their 20s and 30s intended to buy their own home within two years.

This also affected preparations for marriage, with 55 percent of respondents between 20 and 44 who tied the knot last year finding it difficult to afford their own homes. They had to spend W169 million on average to prepare for marriage, up W35 million compared to four years earlier.

The average household income stood at W4.93 million last year, up 3.1 percent from 2020, but statistics were skewed because income rose only among people in the middle and high-wage groups. People who earn W7 million a month after tax saw their monthly income rise 5.9 percent and those who earn between W5 million to W7 million 4.7 percent. But the income of people in the bottom 20 percent of the wage bracket fell 1.1 percent to 1.6 percent.

As a result, the disparity between the fifth and first income quintiles rose from 4.83 times in 2018 to 5.23 times last year. Shinhan Bank said "unstable employment conditions" amid the coronavirus pandemic appear to have had an effect.