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South Korea Wealth Report 2020



AJ Marketing - South Korea Wealth Report 2020

If you're thinking about expanding your business to a new country, you'll want to do some intel work first. One essential step is checking out the wealth report for that country. Why is this so important? Well, understanding the financial landscape of a population can give you a good sense of their buying power, and that, in turn, can have a big impact on how well your products or services will sell there. So, before you make any moves, take a good look at the wealth report!


Even in the era of low growth and low interest rates during COVID 19, the number of wealthy people and financial assets in South Korea have steadily increased in the past decade. In 2019, there were around 920,000 millionaires living in South Korea, and this figure is projected to reach over 1 million this year, in 2024. The prospect of "one million millionaires" raises the question about how this small population is able manage assets, grow wealth and invest for the future.


The portfolio of assets is diversifying, including cash and cash equivalents, stocks, and real estate. This article looks at the changes in the number of wealthy people and their assets in Korea, along with the changes in financial behavior over the past 10 years.


For this article, we will be tackling the wealth report in South Korea for year 2020. This will give us valuable insight on projected wealth growth, and the country's economic viability for international businesses. In the context of this article, "affluent" or "wealthy" individuals are those whose annual income exceeds 1 billion KRW. Let's dive into it.


AJ Marketing - South Korea Wealth Report 2020 - CONNECT

South Korea Wealth Report for 2020 ⬇️



1. Trends of Affluent Koreans over the Past 10 years


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Data from KB Research, Translation by AJ Marketing

Over the past 10 years, the number of affluent Koreans has increased by 2.2 times, and their total financial assets have increased by 1.9 times.

The number of wealthy folks in Korea has been skyrocketing! In just nine years, from 2010 to 2019, the number of affluent Koreans more than doubled, going from 160,000 to 354,000. That's a yearly increase of 9.2% - way more than the 0.5% yearly increase in the overall population during the same time frame.


So why the sudden surge in wealth? Well, it's partly because the Korean economy has been growing like gangbusters, with a GDP that's gone up 4.2% per year, from 1,323 trillion KRW to 1,919 trillion KRW. And as the economy has grown, so have the financial assets of Korean households - by a whopping 1.7 times, from 2,186 trillion KRW to 3,760 trillion KRW.


But get this: the rich have been getting richer at an even faster rate than the rest of the population. In fact, their financial assets have almost doubled, going from 1,158 trillion KRW to 2,154 trillion KRW. That means the wealthy's financial assets now make up over 57% of all financial assets in Korean households, up from 53% just a decade ago. Talk about a growing divide!



2. Real Estate Assets of the Affluent Koreans


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Data from KB Research, Translation by AJ Marketing

Want to know what's been driving the wealth boom in Korea? Look no further than real estate - it's been a huge player in the game for the past decade. In fact, it's made up a full 50% of wealthy folks' assets, and 40% of all financial assets. And get this - the gap between the proportion of real estate and financial assets has only been growing wider over time.


Real estate assets of the affluent financial assets are about 5:4, and the proportion of financial assets has decreased since the mid-2010s.

The increase in real estate assets seems to be due to the fact that the sale price of apartments in Seoul weakened in the early 2010s, but turned strong in the mid-2010s, and the wealthy people increased their investment in real estate assets.


In contrast, the proportion of financial assets has gradually decreased since the mid-2010s. In 2017, the proportion of real estate assets and the proportion of financial assets increased at the same time, showing a growth trend in the same direction.



3. Status of Affluent Koreans in 2020


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Data from KB Research, Translation by AJ Marketing

At the end of 2019, the number of wealthy Koreans was 354,000, and the financial assets of the wealthy were KRW 2,154 trillion.

As of 2019, there were a whopping 354,000 wealthy Koreans with financial assets of over 1 billion KRW - and that's up 9.6% from the previous year! As you might expect, this increase in the number of wealthy people has come with a rise in the total scale of their financial assets. So if you're looking to make bank in Korea, it might be time to start taking some notes from the real estate moguls.


At the end of 2019, the total financial assets held by wealthy Koreans was 2,154 trillion KRW, an increase of 6.8% compared to 2018. Financial assets of 1 billion KRW or more are further subdivided into "typically wealthy" financial assets of 1 billion KRW to less than 10 billion KRW, "high" assets price of 10 billion to 30 billion KRW, and "ultra-high" assets price of 30 billion KRW or more.


91.5% of Korean wealthy people fall into "typical wealth" price range, 6.9% (24,000 people) fall into "high wealth" price range, and 1.8% (6,400 people) fall into "super high wealth" prices range.


The financial assets they own are estimated at 823 trillion KRW for the typically wealthy assets price, 429 trillion KRW for the high assets prices, and 901 trillion KRW for the super high assets prices.


70.4% of wealthy Koreans live in Seoul and the metropolitan area in 2020, an increase of 17,000 compared to the previous year

The number of wealthy Koreans increased by 31,000 from 323,000 in 2018 to 354,000 in 2019. By region, the number of rich people increased significantly in Seoul and the metropolitan area, where 70.4% of the wealthy are concentrated.


In Seoul, six districts, namely Gangnam-gu, Seocho-gu, Jongno-gu, Seongbuk-gu, Yongsan-gu, and Yeongdeungpo-gu, showed relatively higher concentration of affluence than other autonomous districts.


The most expensive area in Seoul as of October 2020 was Gangnam-gu, with an average sales price of 71.6 million South Korean won per 3.3 square meters.



4. The Growth Engine of Wealth in Korea


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Data from KB Research, Translation by AJ Marketing

The growth engines for wealth formation are “annual savings” and “seed money”

The first growth engine to increase the wealth of the rich in Korea is “annual savings”.


“Annual savings capacity” refers to the amount of living expenses, taxes, and three major insurance premiums (national pension, health insurance, and employment insurance), minus the annual income of a rich household.


The annual savings capacity of rich households is an average of 73 million KRW, which is more than 6 million KRW per month. The difference was large by total asset size, and the annual savings of households with total assets of less than 5 billion KRW was 48.8 million KRW, whereas those with more than 5 billion KRW were 144.9 million KRW, which was 2.2 times higher.


The second growth engine for the wealthy to grow their wealth is "seed money."


"Seed money" is the cornerstone for the rich to increase their wealth, and by achieving this, the income from future investments will in earnest exceed a certain amount. The least amount of seed money that the rich think is 500 million KRW (median value); 73.1% of the rich answered that they should ideally have more than 500 million KRW.


Other growth engines for asset formation are “debt utilization” and “investment asset distribution strategy”

The rich, on average, use about 11.4% of their total assets in debt utilization to acquire investment assets or run a business. The rich who practiced debt utilization the most were those with total assets of 5 to 10 billion KRW, and 14.2% of their total assets were used.


Another way of the wealthy to grow assets is the strategy for distributing investment assets to savings capacity. In other words, the larger the total asset size, the higher the investment ratio of real estate investment assets. It shows that the distribution of investments from financial assets appear in the initial period when the accumulated assets are small. Then, after a certain amount of assets, larger real estate assets are more actively invested in many cases.



5. Future Investment Plans of Affluent Koreans


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Data from KB Research, Translation by AJ Marketing

The financial investment agency that the wealthy think is the most promising in the long term is "stocks"

In the long term, the most prominent financial investment destinations for the affluent in the future were "stocks", with 61.6%, "investment/savings insurance" (such as pensions, variable life, and variable universal life) with 28.0%, and "funds" with 26.8%.

Even among the wealthy, there were differences in prospects for promising investment destinations according to the total asset size. There was little difference between stocks and investment/saving insurance, but there was a difference in outlook for funds and bonds.


People with total assets of more than 5 billion KRW were likely to select long-term investment destinations for funds and bonds, while those with less than 5 billion KRW preferred “discretionary/trust products”.


The intention to invest in overseas assets is small, the main reason is "because the global economy is uncertain"

Wealthy Koreans often showed a negative attitude that they had no intention of investing in foreign assets. Among the wealthy, 43.3% answered that they had "no intention of investing in overseas assets," which was higher than 24.3% who were “normal” and 32.5% who were “willing to invest.”


41.4% of those with a total asset of less than 5 billion KRW answered that they have no intention to invest in foreign assets, and 45.7% of those with a total asset of less than 5 billion KRW responded that they did not intend to invest, indicating that their interest in overseas investment was relatively low.


This is believed to be due to the divergence of the wealthy's evaluation of overseas assets amid growing global uncertainty. The reason the rich are not interested in investing in overseas assets is most often because "the global economy is uncertain" and "the risk of investment loss is high." Others simply thought that "domestic investment is enough."



6. Changes due to COVID-19


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Data from KB Research, Translation by AJ Marketing

30.5% of the affluent Koreans experienced a decrease in income due to COVID-19

It is seen that 30.5% of the wealthy experienced a decrease in monthly household income due to COVID-19. The wealthy households who experienced a decrease in income showed an average decrease of 21.3% in the household's monthly income; and the more financial assets meant the less the decrease in income.


The area with the greatest decrease in income was "Work/Business income," which was the most affected area by responding that 94.3% experienced a decrease, while 44.3% experienced a decrease in "Financial income," and 28.7% for "Real estate rental income."


Rich people who have experienced a rise in the value of comprehensive assets are more active in portfolio adjustment.

In a situation where the value of assets, especially stocks and funds, changes rapidly due to COVID-19, 19.0% of the rich conducted a portfolio inspection according to the market conditions. In particular, it was found that the more total assets were, the more actively the portfolio inspection was performed.


Only 11.7% of the wealthy with total assets of less than 3 billion KRW reviewed or changed their portfolio, while 24.9% of the rich with total assets of 5 billion KRW or more, more than doubled their portfolio inspections and changes.



Conclusion


If you're curious about the state of wealth in Korea, there are some pretty interesting trends to keep an eye on. For starters, the number of wealthy folks has been on the rise for a solid decade now, and so have total financial assets. And for those who are really raking in the dough (we're talking annual incomes of over 1 billion KRW), real estate has been a huge contributor to their wealth. In fact, it's made up a whopping 50% of all assets for the past decade!


When it comes to how much people are actually worth, there are a few different categories to consider. About 91.5% of Korean wealthy people fall into the "typical wealth" range, while 6.9% are in the "high wealth" range, and just 1.8% are in the "super high wealth" range. That last group represents a mere 6,400 people in the entire country!


As for where these wealthy folks are located, it's no surprise that Seoul and the surrounding metropolitan area have seen the biggest increase in rich residents. In fact, a whopping 70.4% of all wealthy people live in this region.


So how do these people get so rich in the first place? It turns out that saving and seed money are the two main ways that the affluent grow their wealth - and when it comes to long-term financial investments, stocks are seen as the most promising option.


Lastly, when the COVID-19 pandemic hit, many rich Koreans conducted portfolio inspections to check on their investments in light of market conditions. And interestingly enough, the more total assets someone had, the more likely they were to take a close look at their portfolio.





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