property price(real-estate rent)

House price boom is over
“It’s certain that the days of splurging on houses as an investment is all but over, and this trend may lead the country down the path of Japan,” Lee said. “It’s hard to imagine the house-price booms of the mid-2000s happening again.”

Kim cited the imbalance of housing supply and demand, as well as the aging population as key factors leading to a potential long-term recession.

Nomura Securities chief economist Kwon Young-sun has warned Korea may be in danger of suffering a Japan-like collapse of the real estate market if the Bank of Korea (BOK) continues on its low rate trajectory.

In a report released in January, titled “Part II: South Korea Reminiscent of late-1980s Japan,” Kwon claimed there were “striking parallels” between Korea’s monetary policy and that of Japan 20 years ago.

“Although Korea is likely to avoid a rise in asset prices for housing and equities due to government limits on property costs and strict bank lending to market investors, it is still in danger of ‘speculative demand for corporate bonds’ and excessive borrowing by households resulting from low interest rates,” he wrote.

On March 10, the BOK hiked its policy rate by 25 basis points to 3 percent in a bid to tame inflation but Korea’s central bank has been blamed for moving too late and is falling behind the inflation-fight curve.

Kwon said if the government prolongs its deregulation of mortgage financing, which is supposed to end in March, it would make the credit channel ineffective as mortgages have already picked up markedly since the fourth quarter of 2010.

“Such a ‘growth over inflation’ policy could be positive for asset prices, strengthening investors’ bullish expectations, but this may also deteriorate the transmission mechanism of the monetary policy through the expectation channel,”