[2023 National Assembly Audit] Lee Chang-yong "If Interest Rates Rise Further, Real Estate PF Is the Biggest Concern"

"Financial Stability Issues When Falling More Than 30% from Peak"

"If interest rates are raised further, real estate project financing (PF) is the biggest concern in the current situation."

On the 23rd, at the National Assembly's Planning and Finance Committee audit held at the Bank of Korea (BOK), Governor Lee Chang-yong responded to a question from Hong Young-pyo, a member of the Democratic Party of Korea, asking, "What is your biggest concern if interest rates inevitably have to be raised?"

Regarding the impact on ordinary households, Governor Lee said, "Real estate loans are mainly concentrated among high-income earners, so their interest burden may increase," but added, "Real estate PF is connected to financial institutions, so there could be issues with financial stability."

In response to a question from Bae Jun-young, a member of the People Power Party, asking at what level housing prices would be considered stable, Governor Lee explained, "It is difficult to provide a specific number, but broadly speaking, when real estate prices started to fall significantly after November last year following the PF crisis beyond October, internal simulations at the BOK showed that a drop of about 30% from the peak would not pose major problems, but a further decline could cause issues."

Governor Lee added, "Financial institutions and PF can endure a drop of up to 30% from the peak, but if it falls more than that, difficulties will arise," and continued, "At that time, there were concerns about a hard landing, and when the February Monetary Policy Committee minutes were released, prices had fallen 18% in just one or two months, leading to the perception that continuing this downward trend would be problematic."

[Image source=Yonhap News]

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