From the Korea Times:
Deputy Prime Minister and Finance-Economy Kwon Oh-kyu concurs with the IMF view that a bubble does not exist in Korean property market but private research institutes such as Samsung said at least 35 percent of a bubble exists in the current prices of apartments in Seoul.
Vice Finance Minister Bahk Byong-won was recently pilloried by netizens after he has said in a radio interview that there is no bubble in housing price.In the minds of those critics is a fear that Korea may repeat the path of the collapse of asset price bubble in Japan.
Apartment prices have risen an average 35.9 percent since President Roh Moo-hyun took office in 2003. Expensive ones in Kangnam, Socho and Songpa went up nearly 70 percent in the same period, despite the Roh administrations full-court effort to calm the property market.
Supporters of a bubble-go-bust scenario argue that this is the start of the “lost decade that took place in Japan in the 1990s that swooned the worlds second largest economy, pointing out striking similarities that are transpiring in the Korean economy.
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At that time, Japanese companies borrowed money at low interest rates in overseas capital markets. Japanese financial institutions concentrated on real estate-backed lending, the report said.Their aggressive loan marketing pushed up real estate prices, and the expectation for a further rise coupled with the loan to make the bubble even bigger.
Similar scenes are unfolding in Korea.
Korean banks have also been competing to offer more mortgages, as housing loans have been a key earnings source.
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Japans bubble suddenly collapsed as the government started regulating real estate-backed loans. The result is now a textbook case.From 1991 to 1999, output growth in Japan averaged only a little over 1 percent, compared with around 4 percent achieved in the 1980s. The housing prices in Tokyo fell to one third of the peak price, and 9,000 trillion won disappeared as the asset prices fell. Middle class families collapsed as they were left with loans that they couldnt repay. There are plenty of warnings but few are being heeded.