Research Briefing | May 16, 2023

A mild drop in property prices still carries financial risks in South Korea

South Korea: A mild drop in property prices still carries financial risks

Even without a steep drop in prices, the downturn in South Korea’s property sector is a source of worry given the rise in property-related debt in recent years. Though pressures from rate hikes should ease, interest rates are high and the growth outlook remains weak. 

Our baseline assumes a 7% peak-to-trough fall in South Korea’s house prices in the current downcycle, a milder correction than what we expect in Australia and New Zealand. The historical trend of house price-to-income ratio implies that housing is moderately overvalued.

What you will learn:

  • Our previous analysis showed that a resilient labour market could restrain the severity of the housing market downturn.
  • Still, high leverage could amplify the risks coming from a mild drop in property prices. Property-related loans for both households and corporates have increased sharply.
  • South Korea’s Jeonse (leasehold deposit) system also poses unique macro financial risks.
  • In an environment of high interest rates, South Korea’s property sector adds downside risks to our already gloomy growth forecast. Moreover, recent banking turmoil in the US and Europe could lead to sharper-than-expected falls in asset prices.

Back to Resource Hub

Related posts

crowd hands

Post

How politics could affect APAC economics in a busy 2024 – a primer

Our view is that the flurry of elections across Asia this year generally do not look like high-risk events for investors.

Find Out More
Three key idiosyncrasies in Asian trade and why they matter

Post

Three key idiosyncrasies in Asian trade and why they matter

Idiosyncrasies in recent Asian trade data suggest that country-specific factors are becoming more influential and causing some countries' exports to buck cyclical trends. If that continues, the fortunes of regional exporters will diverge further in 2024, though we still think the overall export trend will be subdued.

Find Out More
Liede Bridge urban landscape Growth outlook determines the fate of fiscal consolidation

Post

Growth outlook determines the fate of fiscal consolidation in APAC

We expect fiscal consolidation to generally continue in Asia, except in mainland China and Taiwan. In those economies, we anticipate looser fiscal policy this year and very slow normalisation next year.

Find Out More