Last year’s Q3 household surplus fund grew by 37.7 trillion won.
Plummeted by 40 trillion won in 6 months…decreasing surplus funds
Household income increased but so did funding through mortgage loans
Government shifted to net cash operation with reduced spending
In the third quarter, the growth of surplus household funds dropped by nearly 40 trillion won compared to six months prior. Although income growth was slight, the resurgence of real estate investment, particularly in the Seoul metropolitan area, played a significant role. As people stretched their finances to the limit, households raised almost 20 trillion won in funding, mainly through mortgage loans, which increased more than fourteenfold in half a year.
## Expansion of Real Estate Investment Leads to Decline in Household Surplus Fund Growth
According to the Bank of Korea’s “2024 Q3 Preliminary Financial Circulation” released on the 7th, the net cash operation amount for households (including individual businesses) and non-profit organizations as of the end of September was tallied at 37.7 trillion won. The net cash operation amount, defined as the funds managed through deposits, bonds, insurance, and pension preparations minus loans from financial institutions, signifies the increase in surplus funds by economic entities.
Compared to the same quarter last year (19.7 trillion won), last year’s Q3 household surplus funds were nearly 20 trillion won higher. However, they decreased by 3.5 trillion won from the previous quarter (41.2 trillion won) and plummeted by more than half from Q1 last year (77.6 trillion won).
The sharp decline in the increase of household surplus funds by nearly 40 trillion won over six months is attributable to rising housing loans amidst increased home acquisitions, despite the rise in household income. Statistics Korea indicates that the household income growth rate rebounded from -3.1% in Q2 to 5.9% in Q3. Concurrently, the net acquisition of personal apartments nationwide increased from 53,000 units to 72,000 units.
Kim Sung-jun, head of the financial circulation team at the Bank of Korea’s economic statistics department, explained, “The volume of housing transactions increased in Q3 compared to Q2 last year, along with a rise in apartment occupancy and net acquisition of personal apartments. Although household income increased, the need for funding related to home acquisition led to a contraction in the Q3 fund operation scale.”
As a result, the funding scale for households and non-profit organizations surged from 1.4 trillion won in Q1 to 14.6 trillion won in Q2, multiplying more than tenfold, and then skyrocketed to 19.9 trillion won in Q3, reaching the highest point since Q3 2023 (21.7 trillion won). Conversely, the operation scale declined by over 20 trillion won, from 79 trillion won in Q1 last year to 57.6 trillion won in Q3.
## Expansion in Corporate Net Funding Scale…Government shifts to Net Repayment
The financial assets for households and non-profit organizations at the end of September stood at 5,429.9 trillion won, an increase of 21.6 trillion won from the end of June. The financial liabilities for the same period rose by 22.1 trillion won to 2,356.2 trillion won. The net financial assets, calculated by subtracting financial liabilities from financial assets, decreased by 5 trillion won from the previous quarter to 3,073.7 trillion won. The ratio of financial assets over financial liabilities fell slightly to 2.30 from 2.32 the previous quarter.
Regarding the financial asset composition for households and non-profit organizations, deposits remained at 46.1%, the same as the previous quarter. Insurance and pension reserves increased by 0.6 percentage points to 28.4%, and bonds rose by 0.2 percentage points to 3.7%. In contrast, equity securities and investment funds dropped by 0.8 percentage points to 20.9%. For financial liabilities, loans from deposit-taking institutions accounted for 70.5%, a rise of 0.3 percentage points from the previous quarter. Loans comprised the largest share at 93.7%, followed by government loans (3.2%) and other credits including trade credit (3.1%).
For non-financial corporations, the net funding scale expanded slightly from 23.7 trillion won in Q2 to 25.5 trillion won in Q3, influenced by reduced current net profits and increased fixed asset investments. According to the Korea Exchange, listed companies’ net profits dropped from 30.2 trillion won in Q2 to 24.8 trillion won in Q3. Meanwhile, construction and facility investments rose from 76.2 trillion won and 54.1 trillion won to 77.9 trillion won and 55.1 trillion won, respectively.
The general government, including the National Pension Service, shifted from a net funding of 1.1 trillion won in the previous quarter to a net cash operation of 18.7 trillion won. While the government’s total revenue slightly decreased from 148.5 trillion won in Q2 to 143.4 trillion won in Q3, the total expenditure drastically shrank from 159.7 trillion won to 120.4 trillion won due to concentrated spending in the first half of the year.
As for the overseas sector, the net funding scale decreased from 13 trillion won to 36.5 trillion won. This was due to the expansion in overseas bond investments by residents, leading to a significant increase in funding compared to operations. The increase in funds operated by the overseas sector signifies an increase in Korea’s external debt, while the increase in funds procured indicates an increase in Korea’s external assets.