Seoul’s property market heats up, raising fears of a debt-fueled bubble
At a time when South Korea’s economy faces downside risks on multiple fronts, policymakers are now required to deal with two, interrelated challenges — a spike in property prices in Seoul and the ballooning of household debt.
The resurgence of Seoul’s housing market is prompting renewed concerns over financial stability. Since the Seoul Metropolitan Government eased land transaction restrictions in key districts last month, trade activity has surged, particularly in the affluent Gangnam area.
On top of the regulatory move that drove up apartment prices in Seoul, a mix of the Bank of Korea’s recent interest rate cut, a shortage of housing supply in the capital region and a lack of coherent policy coordination has deepened worries about the prospect of a new debt-fueled property boom.
Latest data shows that Seoul’s apartment prices rose by 0.16 percent in the week leading up to March 3. Songpa-gu witnessed the biggest rise of 0.7 percent from the previous week, followed by Gangnam-gu and Seocho-gu at 0.46 percent. Notably, the weekly rise of Songpa-gu’s property values marks the biggest level in seven years. By contrast, less affluent districts in Seoul such as Nowon-gu, Dobong-gu, and Gangbuk-gu recorded declines.
Critics argue that the Seoul City’s decision to ease land transaction controls in Gangnam-gu and neighboring areas, ostensibly to protect property rights and inject fresh energy into the sluggish real estate market, has only heightened speculative sentiment.
In response to critical views, the Seoul Metropolitan Government downplayed the shift in trends, arguing that while asking prices have risen in recent weeks, the number of actual transactions remains limited, according to local media outlets.
Yet data from the Ministry of Land, Infrastructure and Transport tells a different story. In February, 3,859 apartment transactions were reported in Seoul, up from 3,327 in January. Moreover, over half of transactions in January and February were completed at prices higher than those recorded in November and December last year. During the period, 71 percent of apartment sales in Seocho-gu were completed at higher prices.
At the same time, household debt is swelling at an alarming rate. In February, new mortgage lending at the country’s five largest commercial banks surged 34.3 percent month-on-month to 7.49 trillion won ($5.13 billion), the fastest growth since April last year. And outstanding household credit extended by all financial institutions, including commercial banks, savings banks and insurance and securities firms, rose by around 5 trillion won from a month earlier in February.
Exacerbating the trend is a drop in borrowing costs. Pressured by financial regulators, commercial banks have lowered mortgage rates, further fueling demand. Financial regulators have publicly urged banks to reflect the BOK's recent monetary easing in their lending rates. With additional rate cuts from the central bank this year, concerns over the property market overheating and household debt risks are mounting.
The rise in apartment prices in wealthy districts of southern Seoul as well as household loans should be taken as a serious issue given that Korea’s broader economy is showing troubling signs of weakness. Industrial output last month recorded its steepest contraction in 18 months, and all three pillars of economic activity — production, retail sales and facility investment — declined in what is being termed a “triple minus.”
Against this backdrop of economic stagnation, overheating of the property market in select districts threatens to ignite speculative moves, worsening the already precarious household debt situation and increasing the risk of a market correction.
Given the importance of early intervention in managing the property market, policymakers must act decisively before the current rising trend turns into a full-fledged bubble.
