Aegis Asset Management: "Domestic Housing Market Less Likely to Collapse Like Japan's Past"

[Asia Economy Reporter Park Jihwan] An analysis suggests that the domestic housing market is unlikely to experience a sharp decline similar to the collapse seen in Japan during the 1990s.

Aegis Asset Management Research Center stated this in a report titled "Is the Current Housing Market Price a Bubble?" on the 29th.

Recently, concerns have been raised about the possibility of a housing price decline similar to Japan's due to the retirement of the baby boomer generation, the main demand group for housing, and population aging.

In fact, Japan's housing prices showed a trend similar to the decline in the working-age population from 1991, when the bubble burst. The report explained that Japan's housing bubble began in 1986 and a downward trend appeared in 1991.

The report analyzed the main causes as rapid changes in financial policy and excessive supply. From 1986 to 1987, Japan lowered the policy interest rate from 5% to 2.5% as part of economic revitalization. Additionally, loans exceeding housing prices (LTV 120%) were implemented, causing excessive liquidity that created the real estate bubble.

In particular, from 1989, to curb the housing price bubble, interest rates were sharply raised from 2.5% to 6% in less than two years. With the implementation of a rapid policy change through loan volume regulations that blocked new loans, the decline in housing prices began in earnest. Furthermore, from 1991, when the bubble collapsed, until 2008, more than one million houses were continuously supplied annually, resulting in a prolonged period without housing price recovery.

The cause of Japan's housing price changes was not the decrease in the proportion of the working-age population, and data from OECD countries excluding Japan also showed little correlation. Even looking at the number of houses per 1,000 people in OECD countries in 2017, Korea ranks low, indicating that the possibility of stagnation due to large-scale supply is also low.

The report predicted that domestic financial policies show gradual changes unlike Japan, and since housing purchases utilize jeonse (long-term lease deposits) and guarantees, the loan burden on owners due to financial policy changes is not significant, so a rapid price decline is unlikely.

Aegis Asset Management Research Center official explained, "As of 2018, the nationwide housing supply rate was 104.2%, and Seoul's was 95.9%, which seems to indicate sufficient housing supply, but in fact, a housing supply rate of 100% means a rigid market with no room for movement, where someone must move out for another to move in."

This content was produced with the assistance of AI translation services.