60 Finance & economics The EconomistAugust 29th 2020
21the city, according to Raoul Nehme, the
caretaker economy minister. Insurers ex-
pect the number of claims to quadruple
and the final price tag to hit $3bn. That is al-
most double the annual revenue of Leba-
non’s 52 insurers, which wrote $1.7bn in
gross premiums in 2018.
Claims are frozen until the government
finishes investigating the blast. Insurers
would largely be off the hook if it were a de-
liberate act (there is no evidence to suggest
it was). An act of war would trigger force-
majeureclauses, and most policies do not
cover terrorism. The worst scenario for in-
surers is also the most likely: that the blast
was an accident. That would trigger anoth-
er set of claims, as insurers seek to collect
from the owners of the warehouse where
the ammonium nitrate was stored.
Whatever the final bill, some Lebanese
insurers will struggle to pay it. Written pre-
miums fell by 4% in 2019 as an economic
crisis forced some policyholders to drop
their coverage. This year has been worse.
Several insurers are subsidiaries of the
country’s insolvent banks. Arope, one of
the ten biggest non-life insurers, is owned
by Blom, Lebanon’s second-largest bank,
which saw net profits fall 77% last year.
Other lenders in the country, such as Byb-
los and Credit Libanais, also offer insur-
ance products.
Foreign reinsurers will be stuck with
part of the bill. Hannover Re expects to
book a “major loss”, an event with more
than €10m ($11.8m) in claims. Sven Atloff, a
member of its board, says it is still impossi-
ble to tell whether the total cost will be in
the low tens of millions of euros, or even
exceed €100m. The firm’s net income was
already down by 39% in the first half of
2020 because of covid-related losses. Mu-
nich Re also expects a sizeable hit.
For Lebanese firms there is an added
wrinkle: whether they can get the cash to
pay claims, many of which must be paid in
dollars. (Though still officially pegged to
the greenback, the Lebanese pound has lost
80% of its value on the black market in re-
cent months.) A banking crisis that began
in October has left dollars scarce; foreign-
currency withdrawals are tightly restrict-
ed. The central bank may have to stop sub-
sidising wheat and fuel imports in Novem-
ber because it is close to its minimum
required reserves.
Several policyholders say their insurers
have offered to pay them with bank
cheques, which can still be freely deposit-
ed. But the cheques lose up to two-thirds of
their value once withdrawn from banks in
devalued local currency, typically con-
verted at a “quasi-official” rate, and con-
verted to dollars on the black market. After
months or years of delay, the policies of
many of the blast’s victims may give them a
payment barely worth the paper they are
written on. 7J
udging fromthe chatter on the streets
of Gangnam, it is a bad time to buy prop-
erty in the South Korean capital. “It’s been a
nightmare looking for an apartment,” says
Lee, a 30-year-old who lives in a rented stu-
dio in the glitzy district in southern Seoul.
“I think about what to buy and where and a
month later the price has gone up by 20%.”
Although he has a good job at a big com-
pany and is planning to buy with his girl-
friend, he worries they’ll have to keep rent-
ing for now. “The government says they
want to fight the rich, but actually they’re
hitting the middle class.”
In recent months such complaints have
become more common. Greater Seoul is
home to half of South Korea’s population
and to the vast majority of attractive jobs,
schools and entertainment options. Few
people with any ambition can afford not to
move there. But affording the move is hard.
Residential property prices in the capital
have risen by around 40% over the past
three years, according to official statistics;
in that time, the prices of flats have gone up
by 52%, suggests analysis by kbKookmin, a
bank. The rises have been fuelled in large
part by demand for scarce high-quality
flats in popular districts such as Gangnam.
The government, spying a speculative
bubble, has introduced around two dozen
measures to cool the market over the past
three years. In December it banned mort-
gages on properties worth more than 1.5bn
won (around $1.3m), roughly the price of amid-size flat in Gangnam. It has also low-
ered the maximum loan-to-value ratio for
flats worth more than 900m won from 40%
to 20%. Last month it announced plans to
increase property taxes for expensive
homes and owners of multiple properties,
as well as capital-gains levies on short-
term sales. The overall effect, though, has
been muddled and counterproductive.
Young people such as Mr Lee, who are keen
to get on the property ladder, are particu-
larly disgruntled by politicians’ failure to
make good on their promises to make
housing affordable.
In part the problem is that the govern-
ment’s efforts to cool the market have been
offset by monetary easing by the central
bank. In order to cushion the economic
fallout from covid-19, the Bank of Korea has
cut interest rates, encouraging some South
Koreans to pile into property. Meanwhile,
the tax proposals have angered existing in-
vestors, and are likely to restrict supply.
Parallel efforts to alleviate the shortage of
high-quality housing by building more of it
have been slow to get off the ground. Prices,
therefore, have continued to rise.
The government’s caps on mortgage
availability have hit first-time buyers, par-
ticularly those looking to buy in affluent
areas. The government says it wants to help
“end-users” of apartments and punish
“speculators”, says Song In-ho of the Korea
Development Institute, a think-tank. But
its attempts to deter the latter have also
hurt the former.
The discontent is exacerbated by the pe-
culiarities of the rental market. Two-fifths
of people living in Seoul own their homes;
the rest are tenants. Because South Koreans
tend to invest the bulk of their savings in
property, four-fifths of landlords are other
private households rather than corpora-
tions or public institutions, compared
with nearly two-thirds in Japan and just
over half in Britain.
Roughly half of all tenancies are based
on a unique system known as jeonse, or
“key money”. Under a jeonsecontract, the
tenant pays the landlord a deposit of be-SEOUL
The government tries to cool the
property market—with little successHousing in SeoulThe high-rise life
Seoul contender
House prices, Q1 2017=100Sources:KoreaAppraisalBoard;Zillow;
ONS;DatastreamfromRefinitiv14013012011010090
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