{"id":33418,"date":"2025-07-10T02:13:20","date_gmt":"2025-07-10T02:13:20","guid":{"rendered":"https:\/\/financialrush.com\/?p=33418"},"modified":"2025-07-10T02:13:20","modified_gmt":"2025-07-10T02:13:20","slug":"seouls-runaway-property-market-puts-korean-central-bank-in-a-bind","status":"publish","type":"post","link":"https:\/\/financialrush.com\/?p=33418","title":{"rendered":"Seoul\u2019s runaway property market puts Korean central bank in a bind"},"content":{"rendered":"<p> \n<\/p>\n<div>\n<p>Unlock the Editor\u2019s Digest for free<\/p>\n<p class=\"article__content-sign-up-topic-description o3-type-body-base\"><span>Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.<\/span><\/p>\n<p><iframe class=\"article__content-sign-up-iframe close\" scrolling=\"no\" id=\"signUpIframe\" data-prev-url=\"\/register\/in-article-sign-up?ft-content-uuid=11e262f0-5461-40d3-951f-933b211c40d7\"><\/iframe><\/div>\n<div id=\"article-body\">\n<p>South Korean policymakers are struggling to stimulate economic growth in the face of an escalating global trade war, as they fear cutting interest rates could boost property prices in some of the most desirable parts of Seoul and inflame an already overheated market.<\/p>\n<p>The Bank of Korea on Thursday held rates at 2.5 per cent, defying pressure to boost an economy that <a href=\"https:\/\/www.ft.com\/content\/34e45014-18c0-4828-8a50-6cd2eec38c57\" data-trackable=\"link\">contracted in the first quarter<\/a> as US President Donald Trump\u2019s tariffs squeezed the country\u2019s crucial exports of cars, steel and electronics.<\/p>\n<p>\u201cThe BoK wants to cut rates to boost the economy, but it is concerned that lower rates will create bubbles in the property market, hurting financial stability,\u201d said Park Chong-hoon, head of research at Standard Chartered in Seoul. \u201cThe runaway property market in Seoul and high household debt are limiting their policy options.\u201d<\/p>\n<p>South Korea\u2019s new leftwing President Lee Jae Myung has pledged to revive the economy following a prolonged period of slowing growth. The economy also faces US tariffs, competition from low-cost Chinese exporters and political turmoil following the impeachment of his conservative predecessor, Yoon Suk Yeol.<\/p>\n<p>Factory activity contracted in June for a fifth consecutive month, prompting the government to warn of persistent economic risks due to uncertainties around US tariffs. This week, Trump reiterated that South Korea would face a <a href=\"https:\/\/www.ft.com\/content\/613678ac-2e61-436b-9d0f-2a8f85a20dee\" data-trackable=\"link\">blanket 25 per cent tariff<\/a> on its exports if it failed to reach a trade deal by August 1. <\/p>\n<p>Last week, Lee\u2019s ruling Democratic party passed a $23bn fiscal stimulus package, including the distribution of cash vouchers ranging in value from $110-$410 to all South Koreans.<\/p>\n<p>But economists warn that deeper structural reforms will be required to address slowing productivity and a looming demographic crisis. The OECD this month forecast a potential growth rate for 2025 of less than 2 per cent for the first time since 2001.<\/p>\n<p>BoK governor Rhee Chang-yong last month acknowledged the difficulty of stimulating growth without overheating the property market. <\/p>\n<p>He said the BoK would maintain an \u201caccommodative monetary policy stance for the time being\u201d but warned that \u201cexcessively lowering the base rate would likely fuel housing price hikes in the Seoul metropolitan area, rather than support a recovery in the real economy\u201d.<\/p>\n<p>Last month, Nomura warned that the looser financial conditions driving the housing market rally were contributing to rising household debt, which at Won1,927.3tn ($1.3tn) last year was 92 per cent of GDP, one of the highest in the developed world.<\/p>\n<p>\u201cWith overheated housing markets in Seoul and rising household leverage testing the BoK\u2019s tolerance for financial imbalances, we expect the BoK to quickly shift its policy focus back towards financial stability,\u201d Park Jeong-woo, an economist at Nomura, said in the report.<\/p>\n<p>Led by the upscale southern districts in Gangnam, prices surged last month at their highest weekly rate in nearly seven years, matching the pace of growth during a previous boom in 2018, even as the market remains stagnant in areas outside Seoul.<\/p>\n<p>The BoK said on Wednesday that housing loans in June had risen by $4.5bn \u2014 the biggest jump in nine months \u2014 with lending growing by more than 4 per cent year on year in each of the past four months.<\/p>\n<p>Lee wants to encourage Koreans to <a href=\"https:\/\/www.ft.com\/content\/5ee12c61-b561-4c36-9c16-77a397adda4f\" data-trackable=\"link\">invest in the stock market<\/a> instead of property, telling reporters he was \u201cdetermined to reverse the speculative forces that are distorting the housing market\u201d. His government has already rolled out measures aimed at cooling prices, including a Won600mn mortgage cap and tightened lending rules.<\/p>\n<aside aria-labelledby=\"aside-label\" class=\"n-content-recommended--single-story n-content-recommended--inset\" data-component=\"recommended\">\n<p class=\"n-content-recommended__title o3-type-body-highlight\">Recommended<\/p>\n<div class=\"o-teaser o-teaser--article o-teaser--small o-teaser--stacked o-teaser--has-image js-teaser\" data-id=\"0f93c015-6e1f-4ef3-accc-8d060983284a\">\n<div class=\"o-teaser__image-container js-teaser-image-container\"><a href=\"https:\/\/www.ft.com\/content\/0f93c015-6e1f-4ef3-accc-8d060983284a\" data-trackable=\"image-link\" data-trackable-context-story-link=\"image-link\" tabindex=\"-1\" aria-hidden=\"true\"><\/p>\n<div class=\"o-teaser__image-placeholder\" style=\"aspect-ratio:2290\/1288\"><\/div>\n<p><\/a><\/div>\n<\/div>\n<\/aside>\n<p>But Park of Standard Chartered cautioned that any gains from the stock market would flow back into property, \u201cas Koreans have strong faith that property investments are much safer than stock investments\u201d.<\/p>\n<p>Stabilising the property market is critical for the new government. Runaway prices in metropolitan Seoul are widely seen as having contributed to the Democratic party\u2019s loss in previous presidential elections in 2022.<\/p>\n<p>One of the biggest failures of that administration \u201cwas its inability to rein in the skyrocketing property market in Seoul\u201d, said Shin Yul, a professor of politics at Myongji University. \u201cYou can\u2019t stabilise the property market by just trying to curb demand without increasing supply.\u201d<\/p>\n<p>Many South Koreans remain determined to put their money in housing.<\/p>\n<p>\u201cPeople believe that property prices will go up again because they have always done so under the previous liberal governments,\u201d said Nomura\u2019s Park. \u201cThere is fear that this may be their last chance to buy a house, given the current supply shortages in Seoul. Many of them are still convinced that property investments never fail.\u201d<\/p>\n<\/div>\n\n<br \/><a href=\"https:\/\/www.ft.com\/content\/11e262f0-5461-40d3-951f-933b211c40d7\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Unlock the Editor\u2019s Digest for free Roula Khalaf, Editor of the FT, selects her favourite stories in this&hellip;\n","protected":false},"author":6,"featured_media":33419,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23],"tags":[],"class_list":["post-33418","post","type-post","status-publish","format-standard","has-post-thumbnail","category-us","cs-entry","cs-video-wrap"],"_links":{"self":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts\/33418","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=33418"}],"version-history":[{"count":0,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts\/33418\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/media\/33419"}],"wp:attachment":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=33418"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=33418"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=33418"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}