"Warnings for 'Leveraging All Assets' and 'Borrowing to Invest': Two Key Reasons from Bank of Korea Governor Lee Chang-yong"

Recently, Bank of Korea Governor Lee Chang-yong issued a strong warning regarding the practices known as 'leveraging all assets' (영끌) and 'borrowing to invest' (빚투).

Recently, Bank of Korea Governor Lee Chang-yong issued a strong warning regarding the practices known as 'leveraging all assets' (영끌) and 'borrowing to invest' (빚투). He highlighted the risks associated with these strategies given the current real estate market conditions and government policies. This blog post explores the reasons behind his warnings and the context in which they were made.

Bank of Korea Governor Lee Chang-yong has recently issued a crucial warning about the risks associated with ‘leveraging all assets’ and ‘borrowing to invest’ strategies. He provided two primary reasons for his caution:

1. Government Housing Supply Measures:

Governor Lee referred to the government's housing supply policies, particularly the large-scale housing supply plans announced in the August 8 real estate measures. The government’s plan includes releasing greenbelt areas in Seoul’s Gangnam district, which could significantly increase housing supply. According to Lee, these measures could constrain rapid price increases in the real estate market, making it less likely for property prices to surge as they did from 2018 to 2021.

2. Demand Management Policies:

Another key factor is the new 2nd stage total debt service ratio (DSR) policy, which will be implemented starting next month. This policy will impose stricter limits on housing and credit loans in the metropolitan area, reducing the amount people can borrow. Lee also suggested that even if interest rates were to decrease in the future, we should not expect a return to the extremely low interest rates seen in the past. The monetary policy committee has made it clear that they will not provide excessive liquidity that could fuel further real estate price increases.

The Bank of Korea’s monetary policy committee decided to keep the benchmark interest rate unchanged at 3.5% during this meeting. Additionally, the economic growth forecast for this year was revised down from 2.5% to 2.4%.

In summary, those considering leveraging their assets or borrowing extensively to invest in real estate should be aware of the potential risks associated with these strategies. Government policies and market realities are shifting, and it’s essential to make informed and cautious investment decisions.

The real estate market is undergoing significant changes, and the risks associated with aggressive investment strategies are growing. Governor Lee Chang-yong’s warnings underscore the need for careful consideration in these times. Consumers contemplating ‘leveraging all assets’ or ‘borrowing to invest’ should closely monitor government policies and market trends. Instead of risky investments, it’s crucial to focus on stable financial planning in the current environment.