SEOUL - South Korea might suffer a bursting property bubble in the manner of the US subprime mortgage crisis as mortgage-backed loans account for 47 percent of total bank loans, local economists warned on Monday.
In a report published by the Chosun Daily, the Hyundai Research Institute said mortgage-backed loans account for 47 percent of total bank loans, as loans to small and medium-sized companies in real estate development and construction have surged since 2001. In Japan, just before the housing bubble burst in the early 1990s, banks had only 26 percent of mortgages.
The institute warned of a "hard landing" for the mortgage market, which would lead to an increase in credit delinquency and a fall in the value of collateral. The bursting bubble would ultimately result in the bankruptcy of financial institutions, the institute said.
Park Deok-bae, a research fellow at the institute and author of the report, said excessive provision of mortgage-backed loans could cause a South Korean version of the US subprime crisis and the Japanese property crash.
He appealed that banks increase the rate of credit loans to companies in industries other than real estate and construction to prevent this.
Construction companies should reduce their business risk from the domestic market by developing overseas markets, he added.