South Korea's housing market continued to show signs of improvement in the third quarter, aided by a significant rise in the number of home transactions, as well as a steady increase in prices, a report showed Wednesday.

In the three-month period ending on Sept. 30, home transactions spiked 21 percent on-year to 290,937, according to the report by the state-run Korea Development Institute.

The sharp increase follows the 39.1 percent on-year surge in the second quarter and the 18.3 percent gain tallied for the first three months of the year.

The report attributed the increase in transaction numbers to low interest rates, coupled with the steady rise in prices for "jeonse" homes that pushed people to buy their own home instead of opting for a lease arrangement.

Jeonse is a local property lease system that involves a tenant paying a large deposit in place of monthly rent. It usually consists of two-year contracts, with the homeowner paying back the principal upon termination of the lease.

Jeonse prices rose an average 5.3 percent on-year nationwide in the third quarter.

In the July-September period, the average jeonse amount came to 72.9 percent of the home price, up from 71.9 percent in the second quarter, according to the report.

KDI said home prices in the third quarter rose 4.1 percent on-year, accelerating from 3.3 percent growth reported in the previous three-month period.

The think tank attributed the rise to growing demand for homes and more liquidity in the market, saying in particular that prices for smaller homes went up faster than those of larger ones.

The government lowered debt-to-income rules to make it easier for people to borrow money from banks to buy a home.

The report said there is a need to carefully evaluate the impact of new homes being built in the country. There will be some 490,000 new homes built this year, which is much higher than the annual 270,000 average from 2000-2014.

It also said there is a need to cut back on loans given to people to buy homes that can put repayment pressure on households down the road.

As of August, total mortgage loans reached 474.3 trillion won, up 6.7 trillion won compared with the month before. This is likely to have risen by another 6 trillion won by the end of September.

"A survey carried out on local economists showed 94 percent of respondents saying local household debt is too high, with 66 percent calling for tougher DTI rules," the think tank said. (Yonhap)