YONGIN, South Korea (Reuters) - In Yongin, a satellite city south of Seoul, orange construction cranes are racing to build gleaming new high-rises, but realtor Kim Woong-jib says he is pointing would-be apartment buyers to older buildings.

A woman walks past an advertisement promoting an apartment complex which is currently under construction in Yongin, South Korea, August 24, 2016. REUTERS/Kim Hong-Ji

The city of a million people has 5,301 unsold new residential units, government data shows, the most in South Korea and a symptom of a growing housing glut that is worrying policymakers.

Developers, egged-on by interest rates at all-time lows, are building apartments at a record pace, one bright spot in an otherwise sluggish economy.

But the home-building boom has fueled a surge in borrowing. South Korea’s household debt, already the highest among emerging markets, threatens to choke off consumer spending and has prompted the government to step in to prevent a damaging crash.

In places like Yongin, the flood of new apartments also means re-sale prices could suffer.

“They are building way too much, it’s irresponsible,” said Kim, a real estate broker in Yongin for 10 years.

“I can’t possibly recommend these new ones to my customers when I’m sure they will lose money,” Kim said.

The total number of housing units launched in the first half of this year in South Korea rose 3.7 percent to 299,000. In 2015, construction began on a record 720,000 new residential units, government data shows.

A sluggish economy and fastest aging population among OECD countries, however, are keeping a lid on demand.

And unlike markets such as Hong Kong, Singapore and Sydney, South Korea has low immigration and few foreign buyers to stimulate sales and prices.

The looming oversupply is a hangover of persistently low rates and a loosening in 2014 of the cap on the mortgage loan-to-value ratio, moves intended to stimulate the economy.

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That fueled a surge in home-buying that prompted a tightening in lending rules in January in an effort to tame ballooning household debt.

In the June quarter, household credit grew an annual 11.1 percent to a record high of 1,257.3 trillion won ($1.1 trillion).

At 88.4 percent of 2015 GDP, South Korea’s household debt even exceeds that of the United States and Japan, Bank for International Settlements data shows.

On Thursday, the government announced further steps to rein in household credit, saying it will encourage households to take out fixed-rate loans, not interest-only ones, by cutting some fees. Guidelines for stricter bank lending standards and curbs on the supply of new housing were also announced.

EXCEPTIONAL DISCOUNTS!

While new units in areas like Seoul’s wealthy Gangnam district are snapped up as soon as they hit the market - which in South Korea is typically before they are built - pockets of oversupply have emerged in places like Yongin.

The building boom is fueled in part by big construction companies such as Hyundai Engineering & Construction Co Ltd 000720.KS and GS Engineering & Construction Corp 006360.KS looking to offset a plunge in orders from overseas, especially the Middle East.

Ratings agency Moody’s predicts the 10 largest builders will launch projects with about 170,000 units in the second half of this year, up 57 percent from the first half. That could “significantly increase unsold inventory over the next 12-18 months,” Moody’s said in an Aug 18 note.

Asked whether there was a glut forming in the property market, a spokesman for developer Seohee Construction Co Ltd 035890.KQ said: "It's clearly widely debated nowadays, but it's just difficult for me to tell."

Policymakers are worried an oversupply of houses and heavy debt could destabilize financial markets when the bubble bursts, said Lee Sang-jae, a Seoul-based economist for Eugene Investment & Securities Co.

High levels of debt are also hurting real household spending, which fell 0.8 percent in the three months through June in annual terms, according to Statistics Korea.

“The housing boom supports growth by driving jobs and business deals, but also squeezes consumption expenditure of households,” Lee said.

So far, nationwide prices have held up, with an index of apartment prices hitting an all-time high in July.

Buses in Yongin, however, are plastered with ads for apartments, promising “exceptional discounts!” and buyers are concerned about over-supply hurting values.

Ji Soon-ja, who runs a convenience store in Yongin, said she made a 56 million won ($50,330) down payment last year for a flat in a nearby building, which has yet to start construction.

Now she is worried, as she sees more buildings going up and fewer would-be buyers.

The spokesman from Seohee Construction, which has 11 projects under construction in South Korea and nine more at the planning stage, said 80 percent of the flats in the Yongin development had already been sold.

Ji said she had not yet decided whether to pay the next installment, due soon.

“It’s clearly a glut,” she said. “They are cranking out apartments and selling homes they shouldn’t, so foolish people like myself ended up buying them.”