February 3, 2014 / 12:00 AM / 5 years ago

UPDATE 1-S.Korea real estate perks up as economy gains momentum

SEOUL, Feb 3 (Reuters) - South Korean house prices rose for a fifth straight month in January, as consumers’ growing confidence in Asia’s fourth largest economy nourished a recovery from the longest sequence of price declines on record.

The property market is still below levels seen six years ago when the market slumped after the 2008-2009 global financial crisis, according to real estate agents.

But data released on Monday by Kookmin Bank, the country’s top mortgage lender, showed house prices rose 0.11 percent in January from December as a combination of low prices and cheap borrowing has begun to draw buyers back.

On a yearly basis, prices rose 0.54 percent last month and at the fastest pace since October 2012.

“The fact that housing prices hit bottom and that interest rates on mortgages are cheap right now are extra incentives to buy,” said Lee Hyeon-woo, a 30-year-old office worker hunting for a home with his fiancée.

While property prices elsewhere in Asia boomed, South Korean prices had fallen or stayed flat in each of the 15 months through August, despite three interest rate cuts during that period.

The Bank of Korea’s policy rate is currently at 2.50 percent, its lowest since January 2011.

Kookmin’s data showed that house prices rose just 2.3 percent annually between 2008 to 2013, after rising by an annual average of 6.5 percent between 2002 and 2008.

According to Real Estate 114, a leading online real estate portal, property prices in late January in Seoul and its surrounding metropolitan area were nearly 11 percent lower than they were at the end of 2007.

“Last year, the market reached a trough,” said the portal’s head analyst Ham Young-jin. “Unless we see another global crisis the market should make a soft landing.”

Ham said prices are expected to increase steadily this year in the capital and its greater metropolis, where a fifth of the country resides. Prices in the rest of the country should follow, albeit at a slower pace.

President Park Geun-hye’s government has provided tax cuts and lower interest rates for people wanting to rent or buy property in a bid to jump-start the economy, and reduce reliance on exports.

Park has also taken steps to loosen regulations that were introduced back when the real estate market was overheating.

The Bank of Korea expects the economy to expand by 3.8 percent this year as domestic consumption improves, with growth accelerating from 2.8 percent last year and 2.0 percent in 2012.

A pickup in wages and economic growth will help reduce South Korea’s high household debt, most of which is related to real estate. In 2012, household debt stood at 153.4 percent of disposable income on a gross basis, well above an Organisation for Economic Co-operation and Development (OECD) average of 121.3.

“Household debt has shown signs of stabilising after rising over the past decade,” said HSBC economist Ronald Man in a research note. “Wage and housing price growth will likely be sustained, supporting private consumption,” said HSBC economist Ronald Man in a research note. (Editing by Simon Cameron-Moore)

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