South Korea’s real estate market is facing growing risks on falling property prices, boosting concerns that over-indebted households may fall into trouble in repaying mortgage loans amid falling prices, a report by the central bank showed Wednesday.
According to the financial stability report submitted by Bank of Korea (BOK) to the National Assembly, apartment prices in the metropolitan area declined 2.7 percent during the January-September period. The prices tumbled 6.9 percent on average compared with the previous high tallied in September 2008, reported Xinhua.
Downside risk factors predominated in the property market due to a rise in unsold homes, a fall in major home buyers aged 35 to 54 and weakening sentiment over the real estate market caused by expectations for further price decline.
The recent fall in home prices risked causing a vicious circle through the macro-financial linkages. Local lenders may urge mortgage loan borrowers to repay debts due to falling prices of real estate, or collateral. It will drive the borrowers to sell homes at a lower price for repaying debts, accelerating the falling pace of property prices.