[Bank of Korea Financial Stability Report] "Seoul Real Estate Overvaluation, Low Stock PER Levels"

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] Although the rise in asset prices after COVID-19 partly reflects expectations of economic recovery following the crisis, the Bank of Korea stated that since risk appetite has increased across the entire asset market, some asset prices are likely to be overvalued.

In the '2021 First Half Financial Stability Report' released on the 22nd, the Bank of Korea said, "When evaluating housing prices through key statistical indicators such as long-term trends and the price-to-income ratio (PIR), overvaluation was observed mainly in the Seoul area."

Regarding stocks, the risk premium (excess return over risk-free assets such as government bonds) has decreased compared to the past, indicating an increased risk appetite, but the price-to-earnings ratio (PER) remains relatively low compared to major countries.

For corporate bonds, the spread between corporate bond yields and government bond yields is below the long-term average, suggesting that risk appetite for bond investments may have increased compared to the past.

In the case of crypto assets, since there is no fundamental cash flow such as stock dividends and no significant recent changes in the possibility of tangible or intangible benefits, it is difficult to find reasonable grounds to explain the sharp rise in crypto asset prices after COVID-19.

The Bank of Korea stated, "If asset price overvaluation persists, it increases the possibility of large-scale price adjustments due to domestic and external shocks, undermining financial stability and macroeconomic stability, and acts as a factor in expanding asset inequality."

It added, "Although asset investment belongs to individual economic activities, its collective results affect financial stability and the macroeconomy, so continuous attention is needed regarding the accumulation of financial imbalances caused by the expansion of private credit and rising asset prices."