The ‘unrest’ in the Korean bond market revealed by the Legoland incident
The Legoland incident was an ‘event’ that occurred in our financial market. On September 28th of last year, one day before the maturity date of the bonds issued to finance the Legoland construction. Gangwon Governor Kim Jin-tae suddenly officially declared that he had decided to proceed with the corporate rehabilitation process for Gangwon Jungdo Development Corporation ( GJC ). It’s like dropping a big bomb on the entire financial market, but the person making the statement probably didn’t know about it.
“If you can’t even trust the local government…” these words came out naturally right away. This quickly spread to ‘Legoland → Gangwon-do (local government) → private companies → the entire Korean bond market.’ In the financial world, local governments are like this, but what about private companies? The perception of crisis quickly spread. Financial constraints began to tighten again, and as the rapid rise in interest rates and the increase in nuclear ash prices coincided, there were concerns about a series of bankruptcies among large construction companies. First, Governor Kim Jin-tae rushed to extinguish the incident, calling it ‘something that never happened’, but this was not something that could be covered up. The problem of real estate insolvency caused by
project financing ( PF ) is still considered a time bomb that may explode at any moment. As concerns about an economic downturn continued, the government began to relax real estate regulations as part of an economic stimulus package. It has been just two months since the Legoland incident occurred.
What happened at the end of last year?… ‘Prevent a hard landing in real estate’
“Because housing prices are showing a downward trend due to the high interest rate situation, we are easing demand regulations at a slightly faster pace…” – President Seok-yeol Yoon / “Regulatory Paradigm” at the Government Tasks Review Meeting on December 15 last
year We will completely change this. In order to normalize punitive카지노사이트 regulations on multiple homeowners by viewing them as the subject of supply in the housing market…” – Deputy Prime Minister for Economy and Finance Choo Kyung-ho / Announcement of 2023 economic policy direction on December 21 last year, President Yoon Seok-yeol hinted at easing
regulations Six days later, the government announced a large-scale economic stimulus plan centered on real estate through the ‘2023 Economic Policy Direction’. The goal was clear. The goal is to prevent a hard landing in the real estate market. The most notable thing is the relaxation of regulations on so-called ‘bullet’ multiple homeowners. It made it possible for people with multiple homes to receive mortgage loans even in regulated areas.
In addition, it was decided to ease the heavy acquisition tax rate introduced in July 2020 and extend the suspension of heavy transfer tax for one more year. The short-term transfer tax rate is designed to return to the pre-2020 level. The government further decided to lift additional restricted areas and return restrictions on actual residence and resale to the levels of five years ago. It seemed clear that this was a measure for the real estate transactions of multiple homeowners rather than actual consumers who were having difficulty recovering their purchasing power due to the rapid rise in interest rates.
Loan regulations have also been clearly lifted. It was decided to temporarily implement a special Bogeumjari loan that integrates the safe conversion loan and qualified loan into the existing Bogeumjari loan. In addition, the target of support will be increased from housing prices of 600 million won or less to 900 million won or less, and the loan limit will be expanded from 360 million won to 500 million won. This became a great foundation for the so-called ‘Saving Dunchon Jugong’.
“The foreign exchange crisis is dozens of times more powerful”… Ten months later, the ‘
barrel’ was lifted with one voice saying ‘warning’, but ten months later, the government’s attitude changed drastically. A high-level meeting of the party, government, and government held at the Prime Minister’s official residence in Samcheong-dong, Seoul on the 29th. Here, the President’s Office, the ruling party, and the government all warned in one voice about the household debt problem.
“If a household debt crisis occurs, it will be dozens of times more powerful than the foreign exchange crisis of 1997.” – Presidential Chief of Staff Kim Dae-ki’s message: “As concerns
continue to arise about household debt risk, we must manage and stabilize it so that it does not lead to financial instability and domino credit failure.” “Measures must be taken” – People Power Party representative Kim Ki-hyun
“As the interest burden and repayment risk are expected to increase under the global high interest rate trend, we will closely inspect and manage the quantity and quality of household debt.” – Prime Minister Han Deok-soo has frozen the
base interest rate for six consecutive times since the beginning of this year. Lee Chang-yong, governor of the Bank of Korea, who decided to do so, recently warned of the risks of ‘youngkkeul’ loans, saying, “We should not expect interest rates to fall back to the 1% level as quickly as before.” In any case, in order to prevent a sharp increase in household debt, the government decided to quickly introduce a floating rate stress DSR , which applies a certain level of additional interest rate when calculating DSR (total debt service ratio). They are once again trying to tighten household debt. What happened in 10 months to change the government’s position 180 degrees? This comes out in numbers. According to the five major commercial banks ( KB Kookmin, Shinhan, Hana, Woori , and NH Nonghyup), the balance of household loans as of the 26th was 684.8018 trillion won. Compared to the end of last month, it increased by 2.4723 trillion won. If this trend continues, the monthly increase is expected to reach the highest level in two years since October 2021 (KRW 3.438 trillion). It is easy to increase debt for short-term stimulus, but it is much more difficult to reduce it. Some say that by the time it is already recognized as a problem, it is too late. The relaxation of various real estate regulations that was lifted as part of the stimulus package at the end of last year is returning as a boomerang. “The increase in the ratio of household debt to gross domestic product (GDP) in Korea is reminiscent of the United States during the 2008 financial crisis,” said Amir Sufi, a professor at the University of Chicago and a leading scholar on the household debt issue, in a paper he contributed to the National Economic Association (NBER ) last August . This is what was revealed in He points out that the ‘counterattack’ of household debt, which is a ‘sweet temptation’ to stimulate the economy, is already underway.
