South Korea’s housing market is cooling rapidly, amidst the recent introduction of stricter lending criteria and interest rate hikes. House prices fell sharply by 14.58% in Q1 2022 from a year earlier, in stark contrast to a y-o-y increase of 9.44% in Q1 2021 and surging house prices in recent years, . In fact, it was the biggest annual decline since 1998. On a quarterly basis, house prices plummeted 21.05% in Q1.
In December 2021, the Financial Services Commission (FSC) unveiled stricter rules for jeonse loans – a housing lease system whereby tenants pay a refundable lumpsum deposit instead of monthly rent on a two-year contract. Then in early-2022, Korea’s banks announced stricter lending rules for borrowers.
In May 2022, Bank of Korea (BOK) raised its key interest rate by 25 basis points to 1.75%, its fifth consecutive rate hike since August 2021 and the highest level since June 2019, in an effort to rein in inflationary pressures. Overall inflation rose to 5.4% in May 2022, accelerating at its fastest pace in nearly 14 years, mainly driven by a surge in oil prices and other commodities.
Recent news. South Korea’s trade-reliant economy expanded by 3.1% in Q1 2022 from a year earlier, a slight slowdown from the previous quarter’s 4.2% growth, as Covid-19 curbs hit private consumption and soaring inflation shed doubts over recovery.
The BOK expects the economy to grow by a modest 2.7% in 2022, following a 4% expansion in 2021 and a 0.9% contraction in 2020.