A study found that if the base rate is raised by 0.25 percentage points (p) and one year passes, dwellings prices in the greater Seoul area fall by about 0.6% a year later. In contrast, dwellings prices in the provinces are almost unaffected.
On the 12th, Senior Research Fellow Jang Min at the Korea Institute of Finance released a report titled "The impact of currency policy on regional dwellings prices."
According to the report, financial policy can reflect regional dwellings market conditions, such as differentiated loan-to-value (LTV) ratios, while currency policy is applied uniformly nationwide regardless of region. Therefore, the impact of curreㅡncy policy on regional dwellings prices can vary depending on the unique characteristics of each region.
Analyzing how interest rate shocks affect dwellings prices in each region, Jang found that when a currency policy shock equivalent to a 0.25 percentage point base rate hike occurs, dwellings prices in the greater Seoul area fall by around 0.6% a year later and then gradually recover.
Also, in metropolitan cities outside the greater Seoul area, dwellings prices fell to around 0.4% after one year. In contrast, other provincial areas showed a relatively small response to the currency policy shock.
Regarding this difference, Jang said, "In the greater Seoul area, dwellings prices are high and the liability per borrower is large, so the burden from rising interest rates is relatively greater."
As of Feb. this year, the average price of an apartment in Seoul is 1.54 billion won, more than four times the 360 million won average in metropolitan cities, and more than six times the 240 million won average in other provincial areas. Accordingly, the average newly issued mortgage loan amount per borrower is about 240 million won in the greater Seoul area, which is 15%–60% higher than in other regions.
Jang said, "Currency policy that involves interest rate changes has the largest and most significant impact on dwellings prices in the greater Seoul area," adding, "For stabilizing dwellings markets in the provinces, policies closely tied to regional characteristics such as production activity, employment conditions, and population growth may be more important."