2 out of 10 real estate rental business operators struggle to cover interest with rental income

According to an analysis by the Bank of Korea, as of the end of the first quarter this year, 18.7% of real estate lessors had rental income insufficient to cover loan interest payments. They accounted for 59% of all loans to real estate leasing businesses, indicating that risk within the industry is concentrated among a portion of borrowers. This figure worsened significantly compared with the first quarter of 2021. At that time, the share of lessors whose interest burden was large relative to rental income stood at 7.1%, and the related loan share was also around 36.6%. During the same period, the delinquency rate rose from 0.25% to 0.81%, while the average RTI fell from 4.7 times to 2.4 times. The Bank of Korea pointed out that real estate leasing loans are concentrated in lowproductivity sectors, which could reduce the efficiency of capital allocation for the selfemployed. It also noted that caution is needed because the high proportion of elderly people among those working in leasing businesses raises the possibility of a greater increase in nonperforming assets if an economic slowdown or weakness in the commercial real estate market continues.