South Korean President Lee Jae-myung does not mince his words. In an interview with Bloomberg last week, Lee said South Korea’s residential property market was a bubble waiting to burst. He called the housing market a “ticking bomb” and said South Korea could go the way of early 1990s Japan, whose epic real estate bust condemned the nation to decades of stagnation and deflation.
Such alarmist talk from a president who took office in June after pledging to stabilise the housing market and improve affordability hardly inspires confidence.
Leaving aside the fact that there are stark differences between South Korea today and bubble-era Japan – South Korea’s economic fundamentals and macroprudential policies are much stronger – it is hard to see what Lee hopes to gain from such a dire warning.
However, these are desperate times for South Korean policymakers. Lee’s ruling Democratic Party is under pressure not to repeat the policy mistakes of president Moon Jae-in’s administration in 2017-22. Despite more than 20 rounds of cooling measures, house prices in Seoul continued to rise sharply, contributing to the party’s defeat in the 2022 presidential election.
While prices began falling steeply towards the end of 2021 when the Bank of Korea (BOK) started raising interest rates, home values in South Korea’s capital diverged sharply from those in other major cities as a brisk recovery gathered momentum.
According to an index of prime residential prices in 46 cities tracked by Knight Frank, Seoul recorded the strongest growth in annualised terms in the second quarter of this year, with prices up a staggering 25.2 per cent. In fact, throughout the five preceding years, prices rose 80.9 per cent, the third-fastest growth rate after Tokyo and Dubai.
AloJapan.com