By Kim Jae-won
Staff Reporter
A local economic think tank said Wednesday that the real estate market is expected to turn upward next year in line with an economic rebound but a key rate hike will stand in the way of recovery.
In its latest report, Samsung Economic Research Institute (SERI) said that the real estate market is likely to undergo a mild recovery next year as robust economic growth and the government’s supply of homes will combine to boost market demand.
“The real estate market tends to move in tandem with economic cycles. Once the economy gets back on track, a large amount of short-term money will flow into the market,” Park Jae-ryong, senior economist for SERI told The Korea Times.
The Korean economy has grown 2.9 percent in the third quarter, and experts say that this trend will continue. The Organization for Economic Cooperation and Development (OECD) expects Korea will grow 4.4 percent next year.
The institute said that the government’s effort to supply more homes will also boost the real estate market. Authorities plan to supply 350,000 houses in the market in 2010 compared to 310,000 houses this year.
It recommended that the government deal with potential over exuberance in the property market through more micro measures, such as regulations on loan-to-value ratios and debt-to-income ratios, avoiding using the blunt tool of the policy interest rate.
Park said that a possible key rate hike and rising unsold homes are likely to delay a recovery in the local property market.
“If the economy recovers, chances are that the key rate will go upward. But a rate hike anytime soon can destabilize the local property market,” Park said.
Against this backdrop, Bank of Korea Governor Lee Seong-Tae said the bank would not raise the policy rate in the foreseeable future. “We will maintain an accommodative policy stance for now until a full-fledged rebound materializes," Lee said earlier this month. However, market analysts expect that a rate hike will come in January at the earliest.
About 130,000 unsold homes may slow down the speed of recovery. “It is not easy for construction companies to sell those houses because they have accumulated over the last three years,” Park said.