South Korean house prices recorded the biggest decline in nine years as the Bank of Korea’s 16-month tightening cycle weighs on the property market, adding to credit concerns for policymakers.
Nationwide home prices dropped 0.32 percent this month from a year earlier, while Seoul slid 0.12 percent, data from Kookmin Bank showed.
South Korean surveyors tend to count the price changes of traded homes against the total value of wider groups, which can result in markedly smaller incremental changes.
The deteriorating outlook is a priority for policymakers as they try to avert a hard landing in the housing market. Property is a key driver of the country’s record-high household debt, and several construction firms are also struggling.
South Korean Minister of Finance Choo Kyung-ho and Bank of Korea Governor Rhee Chang-yong yesterday announced a fresh set of steps to support the housing market. They are seeking to ease credit strains that continue after the developer of a local theme park missed a debt payment earlier this year.
Forward indicators suggest the housing market correction is likely to deepen. The outlook for nationwide property prices slid further to 59 in a Kookmin Bank survey that sets 100 as the dividing line between optimism and pessimism.
The Bank of Korea is forecast to raise its key interest rate at least once more to try to tame inflationary pressure. The benchmark has risen by 2.75 percentage points since August last year.
South Korea is continuing with efforts to ease strains in its credit market, with local financial firms making a second round of contributions to a key bond stabilization fund redeployed last month.
The companies would inject an additional 5 trillion won (US$3.7 billion) into the fund next month through January, the South Korean Ministry of Economy and Finance said.
The Bank of Korea would provide as much as 2.5 trillion won of liquidity through repurchase agreement transactions to participating firms, Choo, Rhee and heads of financial regulators said at a joint press conference yesterday.
The move is part of an already-announced government aid program worth more than 50 trillion won to arrest the worst run-up in money market yields since the global financial crisis.
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