The Bank of Korea analyzed that the "June 27 real estate measures" will curb the rise in Seoul apartment prices by up to 2.1 percentage points (p).
The BOK said on the 21st in its report "BOK Issue Note: Analysis of the spillover effects of prudential policy and effective combination with currency policy" that "tightening macroprudential policy has a significant effect in curbing the upward trend in Seoul apartment prices and the increase in mortgage loans." The report was co-authored by Directors Choi Chang-hun and Chu Dong-ho of the Macro Model Team in the Economic Modeling Office, and researchers Yoon Jin-un and Lee Ga-eun.
To analyze the effects of macroprudential policies such as the debt service ratio (DSR), loan-to-value ratio (LTV), and debt-to-income ratio (DTI), the research team conducted an exhaustive review of past government policies and constructed a macroprudential policy index.
As a result, it found that strengthening macroprudential policy has the effect of restraining Seoul apartment prices and household loans. Specifically, if macroprudential policy precedes a base rate cut, it reduces the upward pressure on Seoul apartment prices from a 25-basis-point (1 bp = 0.01%p) rate cut by about 0.4 percentage points. The later the strengthening of macroprudential policy comes after a rate cut, the smaller the financial stability effect becomes.
In addition, it projected that, without the June 27 measures, Seoul apartment prices in December would rise about 6% compared with the end of June this year, and mortgage loans would increase about 5%. The research team estimated that the June 27 measures would lower the growth rate of Seoul apartment prices and the growth rate of mortgage loans by 1.6–2.1 percentage points and 1.2–1.6 percentage points, respectively.
In the report, the research team said, "If a rate cut comes first without strengthening macroprudential policy while the upward trend in dwellings prices and the increase in household debt continue, economic agents perceive this as a weak commitment to financial stability by the authorities." It added, "Expectations for rising dwellings prices spread, and the risk-increasing effect on financial stability from rate cuts grows larger."
Meanwhile, according to the BOK, an analysis of factor contributions to Seoul apartment prices from June last year to August this year showed that economic weakness exerted 20.8% downward pressure. However, supply-demand and sentiment, and rate cuts were found to have contributed 36.2% and 22.3% to price increases, respectively.