"I can't tell anyone not to buy a home. There is never a right time to buy."
A senior financial industry official said this while explaining how the wealth gap between homeowners and non-homeowners has widened in South Korea. The point was not that people should borrow heavily to buy a home. With jeonse (a Korean lease system requiring a large lump-sum deposit instead of monthly rent) disappearing and monthly rents climbing, the official questioned whether it is rational for individuals to trust the government and wait for a price correction.
It has been nearly a year and a half since the government launched its all-out campaign to curb household debt. Mortgage limits in Seoul are capped at 600 million won, and both the loan-to-value (LTV) ratio and the debt service ratio (DSR) are restricted to 40%. Young adults are offered an LTV of 70% on a first-time home purchase, but the 40% DSR wall remains high. Seoul apartment prices have risen for 89 straight weeks, and given concerns about financial soundness during a period of rising rates, easing the rules anytime soon looks difficult.
While the tight restrictions continue, the wealth gap within the younger generation keeps widening. Even with the average Seoul apartment price well above 1.5 billion won, a steady stream of people in their 20s and 30s are still buying homes. Much of their money comes from their parents. According to the National Assembly, the share of Seoul residents in their 20s and 30s who used gift or inheritance funds to buy a home rose to 42.6% this year through August, from 23.2% in 2023. Gift and inheritance funds used by that age group in Seoul this year alone exceed 2.5 trillion won.
It is worth asking whether cracks are forming in a sound capitalist system. Young people who receive a lump sum from their parents buy homes, while those who rely on earned income move from one lease to the next. The damage may be greatest for high-income, low-asset young adults who grew up in low- and middle-income households and landed jobs at large or mid-sized companies. If the size of a parent's assets, rather than individual effort and achievement, determines success in building wealth, that is a society where the ladder of opportunity has been cut.
With support among people in their 20s and 30s slipping, government ministries are pouring effort into youth policy. They have set aside 43 trillion won in next year's budget for young adults, including a 1 million won payment upon marriage and asset-building programs by age group. More important than such products is protecting the belief that one can live a better life through one's own effort. It is time to examine whether the drive to cap household debt is eating away at the future of the young.