House prices were down 14.58% during the year to Q1 2022

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.

Market-cooling measures 

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. For instance, borrowers with total loans of over 200 million won that need to pay more than 40% of their annual income in principal and interest are barred from getting additional loans. 

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. 

Rents, rental yields: data unavailable in S. Korea

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.