South Korea Warns Against Housing Price Hopes

(MENAFN) South Korea’s central bank issued a sharp warning Thursday against rising expectations for higher home prices, cautioning that such optimism could fuel financial imbalances.

In its latest financial stability report, the Bank of Korea (BOK) affirmed that the nation’s financial system remains stable, supported by the robust resilience of financial institutions and a strong external payment capacity.

However, the BOK flagged ongoing concerns over financial vulnerabilities driven by anticipated housing price increases in the Seoul metropolitan area, despite a slowdown in household debt growth thanks to government efforts to rein in excessive borrowing.

President Lee Jae-myung’s administration has implemented stringent measures targeting household debt and housing affordability, including tighter lending regulations and plans to boost new home supply.

The financial stress index, which tracks short-term financial instability, eased slightly to 16.5 in August but remained within the cautious zone of 12 to 24. Meanwhile, the long-term financial vulnerability index rose to 32.6 at the end of June, edging closer to its long-term average of 33.8.

Housing market data showed prices in the greater Seoul area rose by 1.8 percent year-on-year in August, while prices outside the metropolitan region dropped by 1.1 percent. Specifically, Seoul’s home prices surged 4.8 percent compared to the same month last year.

Reflecting ongoing caution, the central bank held its benchmark interest rate steady at 2.50 percent for the second consecutive month, balancing concerns over speculative home purchases fueled by borrowing against calls for rate cuts to stimulate the sluggish economy.

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