Korea's baby boomer retirement casts shadow on housing market

The number of homeowners in Korea stood at 12.65 million at the end of 2014, with about 1.72 million of them possessing more than two houses, according to figures released by the state statistical office last week.

Their average age was 53.6, up 0.4 years from the 2013 figure. People in their 40s and 50s accounted for more than half of homeowners, with the proportion amounting to 16.8 per cent for those in their 60s, 14.6 per cent for 30-somethings and 11 per cent for septuagenarians.

Notably, the number of homeowners in their 40s and older showed an increase of 300,000 in 2014, while the figure for those in their 30s and younger was down by 48,000.

2014 saw the number of people owning more than two houses increase by 27,000 from the previous year. Real estate experts presume their number continued to rise last year as the government encouraged individuals to buy homes until it reverted to tightening rules on mortgage loans in December to curb rising household debt.

Data from major local banks showed Thursday that outstanding home-backed loans extended by them increased at the fastest pace in five years to 349.5 trillion won (S$415 billion) last year amid a surge in home transactions and rental costs.

A rapidly changing demographic structure in the country, however, may well make ordinary Koreans reconsider the wisdom of owning a home, let alone purchasing multiple houses.

Real estate properties account for nearly 80 per cent of assets held by householders aged 55-74 in the country, with the ratio of their debt to financial holdings ranging from 85 per cent to 115 per cent, according to figures from the Bank of Korea. The structure of household assets in major advanced countries is the inverse.

Experts note the rapid aging of the country's population coupled with a low birthrate over the past decade is set to widen the gap between the numbers of home sellers and buyers.

Retiring homeowners here tend to scale down their houses to reduce financial debt in keeping with a decrease in income.

But the younger population they count on to buy their properties has been shrinking at a fast pace. A report released by the BOK last year forecast that the population aged 35-59, a key group of home buyers, will begin declining in 2018.

Furthermore, younger people increasingly tend to choose not to own a home, reflecting their different lifestyle or frustration with high property prices. This tendency was shown in the decrease in the number of 30-something homeowners in 2014.

Experts worry the mismatch in the housing market will be exacerbated by the massive retirement of about 7 million baby boomers ― those born between 1955 and 1963 ― in the coming years.

Local research institutes forecast housing prices, estimated to have risen by 4.5 per cent last year, will continue to increase this year by a range of 2-4 per cent due to low interest rates and high rental costs. Still, concern is mounting that home prices will plummet in a matter of time as retiring baby boomers put their houses on the market and the number of prospective home buyers is shrinking.

Experts note that expanding reverse mortgages may be an effective way of preventing a possible collapse of the housing market. They also call for more sophisticated changes to reverse mortgages to make them a more viable financial planning tool for baby boomers.

"The downside risks can be eased considerably if more retiring homeowners choose to use reverse mortgages rather than sell their homes," said Kim Deok-rye, a researcher at the Construction Economy Research Institute of Korea.

More lending institutions need to be allowed to deal in the reverse mortgage business, which has been limited to major banks, experts say.

The BOK estimates about 300,000 homeowners in their 50s and older struggle with severe financial difficulties. Of them, only 20,000 subscribed to the reverse mortgage programme as of the end of last year.

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