"To be honest, your country's housing policies are quite ruthless. You're manipulating ordinary people like puppets. Aren't you afraid of losing control and creating a bubble by playing such a big game?" Shen Fang said with a smile, leaning against Li Fuzhen's thigh.

Lee Boo-jin shrugged: "This is a national policy. As for the bubble, that's not something I should worry about."

Okay, that's true. A housing bubble will burst, and ordinary people will be the ones who suffer the most. This is no joke. Even if real estate developers go down in trouble, a weakened giant is still richer than a giant horse.

Why did Shen Fang say that?

Because South Korea has a very special policy of renting out all apartments.

What is a full-rental apartment? Simply put, it means the tenant only needs to pay a security deposit, typically 50% to 80% of the total price of the apartment, and can live there for free without paying rent for a period usually of two years. After the deposit expires, the landlord returns the principal. With this money, the landlord can then scrape together funds to buy a new apartment.

Initially, tenants' security deposits came from their parents' or their own savings, but as housing prices soared, they could no longer afford to pay. As a result, more and more tenants began to take out bank loans, thus increasing their leverage.

The landlord uses the deposit to take out another loan to buy a house, resulting in leverage upon leverage. Under this system, both tenants and landlords participate in buying houses, so South Korea can almost be said to be a nation of real estate speculators.

As more and more people speculate on real estate, this system has become increasingly popular. According to statistics from the South Korean Ministry of Land, Infrastructure and Transport in 2018, by 2016, 35.9% of rental properties in South Korea were rented out entirely by tenants. This system has rapidly increased household leverage.

According to statistics from the International Monetary Fund in 2021, South Korea's household debt as a percentage of GDP reached 105.8%, ranking fourth in the world.

However, there's a problem: South Korea doesn't include security deposits for fully rented apartments in household debt because it falls under private financing. Some South Korean scholars estimate that if these deposits were included, household debt as a percentage of GDP would reach 135%, making South Korea surpass Switzerland to become the world's highest. (Of course, this is a very shameless claim.)

Because of the multiple layers of leverage, South Korea's real estate market is extremely sensitive to interest rates. If interest rates fall and borrowing becomes easier, and there's an influx of hot money, then housing prices will rise. Conversely, if interest rates rise and the interest tenants have to pay to banks exceeds their monthly rent, then tenants will stop paying and start paying rent instead. In this case, landlords will have to return their security deposits, passively deleveraging. If things go wrong, it can lead to a break in the cash flow.

Now let's talk about the second phase of South Korean real estate, which is after 2001.

Real estate is a game for the rich everywhere. After entering the 1990s, the total number of housing units in South Korea increased, and by 2000, South Korea's housing supply rate finally reached 100%. After 2010, Seoul also reached this number.

On the surface, South Koreans no longer seem to lack housing, but the South Korean real estate market underwent a qualitative change after 2001. The residential function of housing gradually disappeared, transforming it into a purely financial investment project.

Lee Boo-jin pinched Shen Fang's nose: "After the 1998 financial crisis, in order to boost the economy, South Korea began to loosen restrictions on the housing market and support the real estate industry. At the same time, it gradually lowered the benchmark interest rate from 5% in 2002 to 3.5%, and I have received information that this interest rate will be lowered further."

“Since 2001, South Korean housing prices have started to surge again, and this is the fourth major increase. The average price of apartments in Seoul rose by 18.9% last year, while the price in cities such as Busan fell instead of rising during the same period. This indicates that South Korea’s real estate market has become significantly polarized, with Seoul becoming the country’s center of speculation.”

Shen Fang squeezed Lee Boo-jin's small hand: "So now you want to bet on Seoul or another city?"

Lee Boo-jin nodded: "Actually, I prefer to develop other cities. Putting all your eggs in one basket is not a wise move. This is a principle that any normal person understands."

“Although developing Seoul will definitely make money, we are not the only real estate developer. They are competing fiercely with each other. There is only so much land available. Fighting for food is not my style. What I am worried about now is this.”

Shen Fang smiled and said, "Fu Zhen, I think you have a lot of ideas, and I support your ideas. You are a smart person, and smart people would think like you. Your South Korean government is not stupid either, and they would not want to put all their eggs in one basket. Even if they wanted to, the people would not agree."

"Therefore, focusing our main efforts on other cities not far from Seoul will yield greater returns."

Lee Boo-jin looked at Shen Fang: "What if we bet on the wrong thing?"

Shen Fang gently pinched Lee Boo-jin's small nose: "How could that be? In your South Korea, houses are not just simple residences, but also financial instruments. They will never go unsold. Of course, if you want to make money, you should do it as soon as possible. I think your South Korean real estate bubble will happen sooner or later. Just wait and see when the skyscrapers collapse."

Lee Boo-jin frowned: "Why do you think our country will experience a housing bubble?"

Shen Fang shrugged: "Isn't that obvious? How much does a good three-bedroom apartment in downtown Seoul cost per month these days?"

"If converted to RMB, it would be around 7,000 RMB," Lee Boo-jin replied earnestly, resting her chin on her hand.

"Even if it's just my husband and I working together, assuming a relatively high-income dual-income household, the annual income in South Korea is around 250,000 RMB. That's already considered a relatively high income. For a normal family, rent alone can easily reach over 100,000 RMB a year. Add to that normal food expenses and entertainment, and it's another 100,000 RMB a year. Then there are the costs for hiring a nanny, babysitter, tutoring, tuition, and daily expenses for the children, not even counting other extra costs. In other words, the average person in Seoul, South Korea, can't earn much money even after a year of hard work. Of course, living in public housing can waive the rent, but you still need to pay a large sum upfront, so it's still the same."

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