Top 1.4 Billion, Bottom 15 Million Won... What’s Happening in Jeju with a '93x Wealth Gap'?

The view of Jeju City, Jeju Special Self-Governing Province. [Image source=Pixabay]

[Asia Economy Reporter Hwang Sumi] It has been revealed that the level of household asset inequality within Jeju Island has deepened since the COVID-19 pandemic. This gap is analyzed to have been fueled by relatively high holdings of tangible assets and the rise in apartment sale prices compared to other regions.

According to the "Status of Household Net Asset Size and Asset Gap in Jeju Region" recently released by the Jeju branch of the Bank of Korea, as of March 2021, the average net asset of households in the province was 491.53 million KRW. Net assets refer to total assets minus liabilities. Compared to other metropolitan cities and provinces nationwide, this is the highest except for Seoul (693.5 million KRW).

In particular, the annual average growth rate of net assets in Jeju was 11.3% from March 2015 to March last year, significantly exceeding the national level of 6.4%. This is analyzed to be due to the steady rise in real estate prices driven by expectations for the construction of the second airport and the influx of residents to Jeju.

When net assets were examined by age, households with heads in their 50s had the highest average net assets at 611.83 million KRW. By occupation, self-employed households showed the highest level with 774.07 million KRW.

However, the asset gap between the upper and lower groups was very large. By quartile, the average net assets of households in the 4th quartile (top 25%) in Jeju were 1.41128 billion KRW, which was 93 times that of the 1st quartile (bottom 25%) households, whose average was 15.12 million KRW.

This level of asset inequality exceeded the national average. The share of net assets held by the top 25% group in total net assets was 74.4%, the highest among the 16 metropolitan cities and provinces. The Palma ratio, which indicates how much more assets the top 10% hold compared to the bottom 40%, was 14.4 times, higher than the national average of 11.2 times.

Additionally, the Gini coefficient (GE) of household net assets in Jeju was 0.63, the second highest after Seoul (0.64). The Gini coefficient is a measure of income inequality and wealth disparity between rich and poor. It ranges from 0 to 1, with values closer to 0 indicating greater equality.

The Bank of Korea analyzed that this asset inequality in Jeju has expanded mainly around tangible assets. Tangible assets refer to physical assets such as land, buildings, machinery, and raw materials. In fact, the proportion of tangible assets held by households in Jeju was 84.4%, the highest among metropolitan cities and provinces nationwide, exceeding the national average (77.5%) by 7 percentage points.

In particular, the disparity in apartment sale prices is analyzed to have driven asset inequality. According to the Bank of Korea, the variance in apartment sale prices expanded significantly from March 2015 to March 2021. Also, the quintile ratio, which shows the gap between the top 20% and bottom 20% of apartment sale prices, steadily increased from 4.4 times in March 2019 to 5.0 times in March last year.

Furthermore, the Bank of Korea diagnosed that this asset inequality is being passed down to the younger generation. The expansion of asset inequality among households in their 20s and 30s is analyzed to be mainly due to differences in inherited property rather than income factors. The steady increase in inheritance and gift taxes reflects this pattern of intergenerational asset transfer.

Concerns have been raised that such a high level of asset inequality could cause economic costs as well as social conflicts. There is also a forecast that, in the long term, it could act as a factor hindering Jeju's growth potential. In this regard, the Bank of Korea advised that efforts to stabilize real estate prices should be further strengthened, and policies for asset-vulnerable groups such as youth and the homeless should be actively considered.