South Korea’s president invokes dramatic Japan realty crash to push domestic property agenda

South Korean President Lee Jae Myung has raised concerns about Seoul’s real estate market, recalling Japan’s groundbreaking real estate crisis in the early 1990s. revise taxes It is aimed to stabilize the housing sector.

Lee said “many people” are concerned that the country could face 20 or 30 “lost” years of Japan, according to CNBC’s translation. Lee was talking about Japan”lost decadesWhen growth slows following the real asset and stock market crash.

he pointed out in a public debate on real estate policy Tokyo’s housing market “burst like a balloon” in the early 1990s, he said Thursday as he sought to highlight South Korea’s overheated real estate market.

Lee stated that real estate accounts for the largest share of South Korean household wealth, and said data shows that South Korea is among the countries globally with the highest proportion of household wealth concentrated in real estate.

As of the end of March 2025, real assets accounted for 75.8% of household assets in Korea, while this rate was 24.2% for financial assets.

South Korea’s president has a history of making bold calls.

Lee, who became a candidate before the 2025 presidential elections, when the Kospi index was close to 2,500. reportedly to arrange Kospi promised to solve the so-called “Korea discount” during his term, setting a target of 5,000.

kospi briefly exceeded 5,000 In January 2026, just six months after taking office, he spearheaded the AI-powered chip boom.

Lee’s government tried to divert household wealth from the overheated housing sector to financial markets, and this strategy only partially worked.

The South Korean index, which has been experiencing variable fluctuations due to heavy dependence on heavyweights Samsung Electronics and SK Hynix, is currently hovering around 6,700.

“I think the possibility of a real asset bubble bursting in Korea is limited,” said Kang Min Joo, senior economist for South Korea and Japan. INGhe told CNBC.

Mortgage loan conditions have been relatively tight for several years and authorities are maintaining them, he said. strict controls about loan/appraisal and debt/income ratios. “While the LTV ratio was previously as high as 80%, it dropped to below 40% and even lower in the Seoul area.”

Household debt to GDP ratio It is at the level of 90.14 in the country as of 2024. Although it has decreased from the record level of 98.67 in 2021, it is still the second highest in Asia after Australia.

Kang said Lee’s comments reflected concerns about the recent rise in house prices rather than an actual asset bubble about to burst.

This view is also shared by Gareth Leather, senior economist for Asia at Capital Economics, who says “bubble fears appear exaggerated”.

He pointed out that only in Seoul, real estate prices have increased rapidly, but even in the capital, prices are only 10% above the level in January 2022. In cities like Busan, prices have dropped to almost 80% of January 2022 prices.

Risks to financial stability are also limited because home buyers are required to make a large down payment, “so the risks of running into negative equity and banks being in trouble are small,” Leather said.

South Korea is unlikely to experience a dual asset and market crash like Japan’s in 1990, experts said, but the country shares several financial and demographic characteristics with Japan.

South Korea has a high credit-to-GDP ratio and stock market capitalization, making it subject to higher rates, tighter credit and global shocks similar to Japan’s pre-crash situation, said Ma Tieying, senior economist at DBS Group Research.

But Korea is not experiencing the massive capital inflows or persistent currency appreciation seen in Japan a few years before the bubble burst, giving the Bank of Korea more flexibility to adjust policy.

Ma said the central bank responded to inflation and financial imbalances in a more preemptive manner than Japan did before the bubble burst.

Following a period of extreme speculation in real estate and stocks in the 1980s, Japan suffered a financial market crash in the 1990s when the central bank began raising interest rates in December 1989, ushering in decades of slow growth.

— CNBC’s Jenny Lee contributed to this report.