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By Jane Han
Staff Reporter
Three years ago, Nam Woo-jin bought an 80 square meter apartment in one of the so-called Bubble Seven districts in southern Seoul. Considering the promising status of this highly speculative zone, he took out a pretty heavy loan and borrowed from his parents. His plan was to sell the house in about 10 years, reap the profits and move out to the suburbs. Basically, the apartment was his golden ticket to a worry-free retirement, or so he thought.
With Bubble Seven apartment prices crashing at a record pace, interest rates on mortgage loans spiking to nearly 9 percent and gloomy news headlines alarming a potential property bubble burst, he has just one question: Bust or no bust?
This is the million dollar question asked by most jittery homeowners, and there are plenty of reasons to be worried.
The national economy, let alone the global economy, is arguably at its early stages of stagflation, a toxic combination of low economic growth and inflation, experts say. Unsold apartments are piling up, prices are plummeting and market transaction is at the slowest in recent history.
``There are already enough negative factors to lead to a bust in the property market nationwide,'' says Huh Chan-kook, a senior research fellow at the Korea Economic Research Institute. ``Focus is not whether the bubble will burst, though, but how big it's going to be.''
Countries like Japan and the U.S. have demonstrated good examples of how deadly a real estate market collapse can be. Japan, after its housing bubble popped in 1989, saw home prices tank for 13 straight years, and the U.S. is currently suffering one of its worst economic downturns triggered by massive defaults on subprime mortgages.
Real estate and economic experts, however, say Korea's situation won't be nearly as fatal due to fundamental differences.
Japan's situation was of much bigger scale, which was mainly triggered by commercial-land speculation, says Kim Hyun-a, a researcher at the Construction & Economy Research Institute of Korea. She said the lion's share of speculation here is driven by residential-property.
``And unlike the U.S., local banks' home loan restrictions also helped prevent a borrowing binge for the most part,'' she added.
With these conditions in mind, Huh says implementing timely, proper measures will help stave off the worst-case scenarios seen overseas.
The government should lower interest rates, deregulate property rules and ease mortgage lending to encourage people back into the real estate market, says Kim Eun-kyung, an analyst at real estate consultancy Speed Bank.
Such deregulatory measures isn't the government's top priority, however, as the Bank of Korea hinted Thursday that it would raise interest rates in the coming months to tame surging inflation.
``Unfortunately, you can't catch both at once,'' says Huh, explaining that keeping inflation in check and stabilizing the property market call for two different policy directions.
Analysts say the middle of next year will be a pivotal point, in which home prices will most likely bottom out, and then either stay staggered or start going up again.
Although heavy regulations are a significant factor bogging down potential homebuyers, property transactions will naturally pick up again once the economy in general recovers, says Kim.
``Who wants the burden of paying off big monthly loans when you have crazy oil prices and inflations to deal with?'' she added.
jhan@koreatimes.co.kr
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