South Korea looks like it may be the next US, with a credit crunch looming and a property bubble nearing record size. Sluggish home sales have been recorded for yet another quarter, and a general economic downturn has pushed property developers, builders and related professions to the brink of bankruptcy. All this means the debt repayment capabilities of mortgagees has lowered, in a nearly identical situation to the US.
The Monetary Policy Committee of South Korea's central bank acknowledged the slowdown in its decision to leave interest rates unchanged for a 10th consecutive month. It said " The domestic economy exhibits signs of a slowdown in its pace of expansion. While exports continue to post robust growth, domestic demand has slackened. There still remains a high degree of uncertainty surrounding future economic developments, largely due to the run-up in international oil prices, the international financial market unrest and the US economic slowdown. "Consumer price inflation has picked up its pace, mainly influenced by high oil prices. The upward trend of real estate prices has slowed down somewhat. "Liquidity is still ample in the financial markets and financial institutions' lending continues to show a steady increase. Meanwhile, long-term market interest rates have shown a sharp rise."
This does not bode well for South Korea's mortgage holders - the Hyundai Research Institute has said that the slump will only put more downward pressure on house prices, and debt default rates will rise. Construction firms will be negatively impacted, and lending institutions will also post sharp losses, it is expected. It is sounding frighteningly similar to the situation in the US, which is being echoed in China and spoken of in Hong Kong.
Many apartments and property is remaining unsold, as the South Korea property market stagnates. There has been a sharp rise in unsold apartments, and general economic growth looks uncertain for the region. These trends are being taken as a benchmark and general indication of what is happening elsewhere in the Far East. Construction firms, banks an mortgagees across the region will suffer as the slump gains momentum.
The bubble began when there was a wave of house sales across the country, buying reached a fevered peak and prices were pushed up considerably. Seoul's financial district, Yoido, saw the bubble grow from a particularly close vantage point. However, around a year ago, buyers and sellers starting becoming rare, until recently, there has been almost a standstill in real estate transactions.
This economic downturn is amidst political turmoil in the country, with mass protests nationwide in June, commemorating the June Struggle of 1987, where the military dictatorship was ended and democracy was brought to the country. These protests aim to bring down the current right-wing president, and instill real-life reform into the nation. These struggles and protests only serve to heighten worry about South Korea's property market and mortgage market.