This file photo, taken June 2, 2021, shows apartment buildings in Seoul. (Yonhap)
South Korea's top economic policymaker said Wednesday excessive demand for home buying could ease amid the central bank's move toward monetary tightening and stricter regulations on household lending.
Finance Minister Hong Nam-ki warned that housing prices could fall if a severe external economic shock occurs at a time when households have maintained high levels of leverage.
"An inflow of liquidity into the housing market could slow down as the country is set to implement measures to slow the growth of household debts and the Bank of Korea (BOK) hinted at a rate hike within this year," Hong said in a meeting.
BOK Gov. Lee Ju-yeol said last week his bank is ready to raise the key interest rate "within this year," stressing the need to orderly normalize its monetary policy amid the accelerating economic recovery.
In May, the BOK froze its policy rate at a record low of 0.5 percent. The central bank slashed the base rate by a combined 0.75 percentage point between March and May 2020 to bolster the pandemic-hit economy.
A rate hike could increase debt-servicing burdens for households and companies. The country's household credit reached a record 1,765 trillion won ($1.6 trillion) as of end-March, up 9.5 percent from a year earlier.
Amid sluggish housing transactions, growth of home prices has picked up in recent months in Seoul on expectations of eased rules on the reconstruction of old apartments in the capital.
The minister earlier warned of potential adjustments in housing prices, saying that the government has a strong commitment to curbing high-flying home prices.
The government has unleashed a series of comprehensive measures to stem rising home prices, but the regulations have resulted in only a short-term letup.
In February, the country unveiled a plan to increase the number of new homes by up to 836,000 nationwide in the next four years. (Yonhap)