South Korea faces property ‘ticking bomb’ as Lee backs BOK hold
Apartment prices in Seoul have climbed for 38 consecutive weeks as at Oct 20
[SEOUL] South Korean President Lee Jae-myung warned that the country’s property market is a bubble on the point of bursting, as he backed the Bank of Korea’s (BOK) decision to hold rates last week.
Amid concerns that cheaper borrowing may further fuel the rally in property prices, Lee said that it was imperative to avoid triggering the kind of economic malaise that afflicted Japan for decades.
“The truth is, the Republic of Korea is sitting on a very dangerous potential crisis, a ticking bomb – that is excessive real estate investment,” Lee told Bloomberg TV in an interview. “If we were to lower interest rates, this could stimulate real estate prices, which is already an issue for us. The BOK made the right decision by keeping rates unchanged instead of cutting them.”
South Korea’s central bank held its policy rate at 2.5 per cent for a third straight meeting last Thursday (Oct 23), as policymakers weighed persistent property price pressures, currency-market risks and uncertainty surrounding tariff talks with the US. The decision was in line with market expectations.
Lee warned that cheaper borrowing could further distort an economy in which real estate has often been a flashpoint. Property has long been a preferred investment tool for speculators, leading to eye-watering prices that prevent many ordinary families from buying their own homes, while leaving those that do overleveraged.
Apartment prices in Seoul have climbed for 38 consecutive weeks as at Oct 20, extending their streak of gains despite multiple rounds of property measures introduced under Lee’s administration, which took office in June following the impeachment of former president Yoon Suk-yeol. The trend underscores the ongoing strength in housing-market demand despite government curbs.
A NEWSLETTER FOR YOU
Tuesday, 12 pm
Property Insights
Get an exclusive analysis of real estate and property news in Singapore and beyond.
Lee said that South Korea is heading down a similar path to Japan previously, with home prices among the highest in the world. He warned of the likelihood of a sharp correction if the trend is left unaddressed and emphasised the need to redirect capital towards more productive sectors.
“If this trend continues, the bubble will inevitably burst. When that happens, we will face a severe crisis not only economically but across all sectors,” Lee said. “We must prevent that from happening.”
The bursting of Japan’s asset bubble transformed the momentum of an economy tipped to become the world’s largest in the late 1980s into the poster child for stasis and deflation in the 1990s and 2000s. Land prices fell for more than a decade and it took more than three decades for the stock market to recover its losses.
SEE ALSO
South Korea’s economic challenges do not stem from the level of interest rates, but from an insufficient fiscal role and a lack of coherent national policy, Lee said. Of these three factors, he stressed that maintaining a stable and consistent economic policy is the most important, followed by a fiscal policy that supports it.
Immediately after taking office in June, the Lee administration unveiled an extra budget of more than US$20 billion to bolster an economy struggling with weak consumption and mounting trade headwinds from US President Donald Trump’s tariffs.
To revive the economy and ensure sustainable growth, Lee said that the fiscal policies implemented so far may not be entirely sufficient, but with additional measures, such as expanding financing in areas such as high-tech artificial intelligence development, South Korea can lay a solid foundation for economic recovery and longer-term growth.
He also highlighted the government’s efforts to dismantle excessive regulation and inefficiencies in capital markets, saying those changes are beginning to pay off. Capital is gradually moving away from real estate and into more productive financial assets, he said.
Asked about his pledges to achieve a 5,000-point milestone on the Kospi index and join a major developed-market benchmark, Lee said there was no specific deadline. But he stressed the need for consistent legal reforms, policy credibility, and external communication to build global investor confidence in South Korea’s growth outlook.
“If we continue implementing national policies that curb speculative real estate investment and direct capital towards productive areas, we can sustain this positive momentum,” Lee said. “We can’t give up on this path.” BLOOMBERG
Share with us your feedback on BT's products and services
