‘Korean economy relies too much on property’

Experts have warned against the government’s reliance on boosting the real estate market as a way to revive the nation’s sagging economy.

Government economic policymakers seem to believe an activated real estate sector could have a spill-over effect on other sectors, according to the experts. An increase in interest rates could also deal a blow to the nation’s economy as it is expected to have a significant influence on the real estate market.

Analysts said measures the government has taken so far for the property industry appear to take some effects into account, but there are concerns that such a “recovery” in the industry is unstable.

“Should the interest rate rebound, demand from end users and investors will snap and this will immediately weaken the market’s momentum,” said Hur Yoon-kyung, researcher at the Construction and Economy Research Institute of Korea.

According to the Seoul Metropolitan Government’s real estate information system, the trade volume for apartments in Seoul was 13,075 cases in March, hitting a record high since the transaction reporting system was introduced in 2006.

This was largely boosted by the Bank of Korea‘s decision to reduce the key interest rate to the record low 1.75 percent, market observers said.

But changes in the real estate market are extremely vulnerable to external factors, such as the key interest rate hike that is expected in the United States and eventually in Seoul, they said.

“It is crucial that the Korean economy achieves a fundamental reform (involving sectors other than the real estate market),” said an analyst.

Kim Jung-sik, professor of economics at Yonsei University, agreed with the concerns.

“Right now, the market is sailing smoothly as interest rates are down and housing prices are going up,” he said.

“But if situations change ― either the interest rate hike or house prices falling ― there are possibilities that the market will face negative consequences.”

By Bae Hyun-jung (tellme@heraldcorp.com)