By Lee Hyo-sik
Staff Reporter
Most households here continue to prefer real estate to stocks and other assets as a means of wealth accumulation. In line with the rapid economic growth over the years, many individuals became rich on soaring housing and land prices.
But the property-centered asset portfolio makes local families extremely vulnerable to sudden changes in economic conditions as seen after the global credit crunch last October. It means when the economy turns bad, Korean households are hit much harder than their counterparts in other countries who diversify wealth portfolios across all asset categories, including stocks, bonds and cash.
Hyundai Research Institute (HRI) said Monday that about 87 percent of assets held by domestic households are sensitive to changes in prices and other market conditions, much higher than those of advanced economies. Real estate properties accounted for 76.8 percent of the entire family assets here on average 2006. If monthly housing rents and deposit money are regarded as part of real estate asset, the ratio goes up to 81 percent.
The figure was much larger than the 33.2 percent in the United States and 39 percent in Japan. In Britain, real estate accounted for an average 54 percent of total household wealth.
The average Korean family puts 19 percent of their money into stocks and other financial assets. But an increasing number of individuals are putting more into these risky instruments, making their family finances even more vulnerable to outside shocks, the institute said.
In search of higher return, more Koreans are shunning savings deposits and other fixed-income products. They are instead choosing riskier products whose returns fluctuate widely in accordance with the stock market and market interest rates.
As for equity investments, more Koreans are deciding to directly buy stocks rather than entrust money to professional managers. In the United States and other advanced countries, individuals usually let professionals manage their investment and employ a series of schemes to mitigate volatility.
"Currently, the real estate market is highly unstable with both upside and downside factors coexisting. Even though the stock market has rallied over the past month on improving economic conditions at home and abroad and better-than-expected corporate results, the market could head downward at any time. Falling property and equity prices could severely aggravate household finances," HRI senior researcher Park Duk-bae said, suggesting families should hold more cash and invest a greater portion of their wealth in safer assets.
Park said households have become the hardest-hit class among economic players because of their unbalanced asset portfolios, stressing the government should closely exam household assets and debts to introduce appropriate measures to improve their financial condition.
Financial services companies also need to develop a range of investment products that enable families to minimize risks."