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[Weekender] Record low interest rates fuel property market

A shift in funds from savings accounts to the real estate market could fuel the home market

When visiting a real estate agency last Saturday, Choi Ho-rim, 40, was surprised to find that there were no apartments at the size of 25 pyeong on sale in Seocho Hills, a complex of 1,082 homes in Umyeon-dong, Southern Seoul.

One pyeong is equivalent to about 3.3 square meters and it is a unit used to measure the size of rooms and buildings in Korea.

“Things were quite different a few month ago. There were dozens of this size of apartments on sale,” she said. 

Visitors listen to the explanation of an apartment complex development near Sangdo Station in southern Seoul on Sunday. (Yonhap)
Visitors listen to the explanation of an apartment complex development near Sangdo Station in southern Seoul on Sunday. (Yonhap)

The real estate agent who she had contacted since the beginning of the year to buy a house for rent told her that many home owners in the complex had delayed their sale plans as they are anticipating a rise in housing prices following the recent sudden rate cut.

The country’s central bank slashed the key rate to a new record low of 1.25 percent early this month. The move sinks the interest rate of banks below 1 percent.

“It is natural for individual investors to move their money to the property market -- targeting housing for rent, commercial buildings or land -- from their savings accounts that offer almost zero return,” realtor Seo Hee-sook said.

Market analysts say the funds will shift to the property market at a faster pace than previous cases, as stocks, another common alternative investment item to savings in Korea, have remained volatile throughout the year due to lingering uncertainties surrounding the Korean economy.

When it comes to the types of property that are seeing growing demand, real estate data showed that the price of officetels -- a type of studio apartment and the most popular housing for rent here -- is moving up faster than other kinds of property.

Real Estate 114, a leading property market information provider in Korea, said the average price per pyeong of an officetel in Seoul surpassed 10 million won ($8527) for the first time last month.

Another segment of the property market that is heating up is apartments that are allowed to be rebuilt. In affluent southern Seoul, the price of an aging apartment that is allowed to be rebuilt due to safety issues has skyrocketed to an average of 33 million won per pyeong.

The property market boom also affects the financial industry. Hence, banks and other industry players are considering entering the property market.

KEB Hana Bank, for instance, announced it has launched a real estate advisory business, saying the new business will help the bank to offer more integrated and comprehensive private banking services to VIP clients.

The recent property market boom also triggers debate on the real-estate market bubble.

“The boom could be short-lived as the market conditions could turn unfavorable in the long-term considering demographic changes in Korea,’’ said Nam Yong-woo, a professor from Korea Nazarene University.

By Seo Jee-yeon (jyseo@heraldcorp.com)
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