South Korea property rally builds, keeping central bank on guard
The Bank of Korea has lowered rates four times since October 2024
[SEOUL] South Korea’s property market rally gained further momentum, reinforcing a decision by the central bank to refrain from lowering interest rates as it waits for government housing measures to cool demand.
Apartment prices in Seoul climbed 0.5 per cent in the week to Oct 20, compared with a 0.54 per cent increase notched over a two-week period to Oct 13 that included an extended holiday, according to Korea Real Estate Board (KREB) data released on Thursday (Oct 23). The latest figures signal persistent demand for apartments in Seoul, stretching the rally to a 38th week.
The KREB said that buying inquiries and transactions have increased, particularly in popular large-scale complexes, areas near subway stations, and reconstruction-targeted complexes, leading to transactions being concluded at prices above market rates.
The consistent gains contributed to the Bank of Korea’s (BOK) decision earlier Thursday to hold interest rates steady even as the export-driven economy faces renewed uncertainties from trade headwinds. The BOK sought to temper expectations of a near-term rate cut as the government’s repeated efforts to cool the housing market have so far failed. More measures were unveiled earlier this month.
At a press conference on Thursday, BOK governor Rhee Chang Yong said that home prices in Seoul remain excessive relative to income levels, an indication that the central bank would prefer to see a correction in the property market before resuming its easing cycle.
“Regardless of whether there is a bubble or not in the property market, housing prices in the Greater Seoul area are at levels that are too high relative to the nation’s income and social stability,” Rhee said at a press conference after the rate decision.
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To curb speculative demand, the government last week unveiled a fresh package of housing measures, including tighter loan-to-value limits in Greater Seoul, an expanded classification of speculative zones, and lower mortgage caps for high-priced homes.
Rhee added that the bank maintained a dovish bias, with four of six board members signalling openness to a rate cut within three months. The BOK has lowered rates four times since October 2024 but paused at its last three meetings amid concerns that cheaper borrowing could reignite a surge in mortgage loans. The central bank has repeatedly warned that real estate-linked leverage poses one of the biggest threats to financial stability.
President Lee Jae-myung, who campaigned on improving housing affordability, has so far made little progress in reversing property imbalances, raising political pressure on his administration.
South Korea’s GDP growth is already projected to slump this year to its weakest pace since the pandemic. The BOK said that uncertainties have increased due to ongoing trade talks and the outlook for the chip industry. BLOOMBERG
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