Monetary and Credit Policy Report released

Supply-demand conditions cited as key variable

Apartments in Seoul are seen from Namsan in Jung-gu. (Yoon Chang-bin)
Apartments in Seoul are seen from Namsan in Jung-gu. (Yoon Chang-bin)

The Bank of Korea said financial imbalance risks are growing as housing prices in the Greater Seoul area continue to rise sharply and household lending keeps expanding. The central bank called for close monitoring of the effects of the government's real estate measures and tax overhaul, along with a consistent policy stance.

"Housing prices in the Greater Seoul area continue to show a high rate of increase, and household lending also continues on a steady upward trend, suggesting that financial imbalance risks are gradually building up," the BOK said in its Monetary and Credit Policy Report released Thursday.

Apartment prices in the Greater Seoul area have recently continued to rise, led by mid- and low-priced housing. The trend appears to be driven by growing demand from actual homebuyers, as instability in the jeonse and monthly rent market deepens amid concerns over insufficient supply.

From March through July, Seoul saw 35,000 apartment transactions, of which 13,000 units were in Gangnam's three districts, Yongsan and the Han River belt. Gyeonggi Province recorded 77,000 transactions during the same period.

In Gangnam's three districts and Yongsan, where high-end housing is concentrated, the volume of homes put up for sale rose relatively sharply. Transactions of homes priced above 4 billion won ($2.99 million) accounted for 7.6 percent of deals in those areas, far above the Seoul average of 1.3 percent. The recent increase in listings there reached 14.2 percent, about three times the 4.8 percent rate in Seoul's outlying areas.

Household lending has continued to grow despite regulatory curbs. The average monthly increase in housing-related loans fell from 5.8 trillion won in 2021 to 2.3 trillion won in 2022, before rising again to 3.8 trillion won in 2023 and 4.4 trillion won in 2024. Through August this year, the average monthly increase stood at about 4 trillion won.

The BOK named supply and demand conditions as the key variable for the housing market going forward. While it remains uncertain whether supply and demand conditions will improve in the near term, the bank said swift implementation of the government's rapid housing supply plan could help stabilize the market. The government unveiled the plan on Aug. 13, aiming to add more than 230,000 housing units in the Greater Seoul area.

Transactions of ultra-high-end housing could also cool under the real estate tax overhaul announced Aug. 3. However, the BOK noted that the details could still change during discussions and the legislative process at the National Assembly, and said the situation warrants continued monitoring.

The BOK also cited household income conditions as a major variable for the housing market and household lending. If the domestic economy's growth accelerates, corporate profits and nominal wages could improve, boosting households' purchasing power for housing.

In fact, in the first half of the year, housing prices rose sharply in the so-called "semiconductor belt" — including Dongtan in Hwaseong, Yongin and Yeongtong in Suwon — as chipmakers paid out performance bonuses and expectations grew for expanded in-house loan programs. The number of record-high-price transactions in the semiconductor belt reached 2,315 in the first half of this year, about 8.3 times the 278 recorded in the same period last year. In July and August alone, the figure hit 756, already surpassing the 681 transactions recorded in the second half of last year.

The BOK also said a shift toward raising the benchmark interest rate could push up lending rates, acting as a restraint on the housing market and household loans. However, it added that the actual impact of rate increases on loan demand would depend on how much households' income conditions improve.

"Given the supply and demand situation in the housing market and household income conditions, uncertainty surrounding the housing market and household lending remains high in the near term," the BOK said. "The government needs to closely monitor the impact of its real estate measures and tax overhaul, while maintaining a consistent policy stance going forward so as not to stimulate housing market expectations or accelerate the growth of household loans."

Park Jong-woo, deputy governor of the Bank of Korea, addressed the government's recent easing of the household loan quota regulation at a press briefing Thursday. "I do not believe the government's determination to consistently pursue macroprudential management has changed," he said. He added, "I see this as a short-term adjustment to address problems that have emerged in the market, mainly involving actual end-users. While the loosening of the loan quota could add pressure to household debt growth, it is hard to say the overall structure of household debt levels has changed."


kimstar@heraldcorp.com