By Cynthia Kim

SEOUL (Reuters) – A senior South Korean official on Thursday called for greater efforts to manage the country’s excessive borrowing, saying problems at China Evergrande served as an example of the debt issues economies could face as they scale back stimulus.

Lee Eogweon is a vice-minister of finance and cites Evergrande as an example of the risk that can arise when central banks around the world unwind their monetary policies from pandemic-era.

South Korean policymakers fear that Koreans are borrowing more than ever, and the rate rises could make it unsustainable, affecting long-term growth as well as purchasing power. August saw the central bank raise its benchmark rate of interest for almost three years.

Lee made the comments following data that showed the home prices of capital regions, where half of the population lives, increased by 13.11% in August. The Korea Real Estate Board reported that this increase was 9.8% higher than the previous year’s annual rate of 8.1%.

In addition, the pace of monthly price gains in homes has accelerated to its highest level for 13 years.

The home-buying frenzy has not been curtailed by a number of tax and loan measures. The June quarter saw household borrowing reach a record 1,805.9 trillion won (1.54 trillion).

As Evergrande has been struggling to pay its $305 billion-worth of debts, investors around the world have become agitated. This raises concerns about China’s systemic financial risks. To see whether the second-largest Chinese real estate developer will pay its interest on a dollar bond due Thursday, markets kept a close watch.

“At a time when nothing seems to be working to cool the debt binge, the lesson from Evergrande is that crisis will come around when you have a lot of debt,” said Park Sang-hyun, an analyst at HI Investment & Securities

“I’m unaware of direct exposures Korea has, but any instability in the Chinese economy will hurt Korean growth momentum too,” Park said.

South Korea has had a difficult time affording homes, according to data provided by Kookmin Bank.

Kookmin Bank data showed that the average Seoul apartment price has more than doubled in five years to 1.18 trillion won ($999.236).

According to Kookmin Bank, an apartment in Seoul costs 18 times more than South Korea’s average annual household income. This is up 11 years from the time President Moon Jaein was elected in 2017.

($1 = 1,178.2400 won)