[Financial Stability Report] Seoul Apartment Market Cap Hits Record High at Nearly Half of National Total... Three New Features of the Housing Market

Seoul Apartment Market Cap Hits 1,817.6 Trillion Won, Share Rises to 43.3%
Concentration on "Single High-Value Properties" Increasing
Jeonse Share Declines, Monthly Rental Transactions Expand
Monthly Rental Contracts Now Account for 60.2%
Weaker Link Between Household Loans and Housing Prices
More Home Purchases Using Personal Funds
Effective Housing Supply Policies Needed
Consistency in Macroprudential Policy Is Crucial

The market capitalization of apartments in Seoul now accounts for nearly half of the national total, reaching an all-time high. The Bank of Korea identified this intensifying concentration in Seoul, along with the rise in monthly rental contracts and the weakening correlation between household debt and housing prices, as key characteristics that set the current housing market apart from the past. As a result, the analysis concludes that maintaining a consistent macroprudential policy stance-such as ensuring “effective housing supply”-has become more crucial than ever.

Jang Jeongsu, Deputy Governor of the Bank of Korea, is speaking at the Financial Stability Report briefing held at the Bank of Korea in Jung-gu, Seoul on the 23rd. Bank of Korea

Seoul Apartment Market Cap Share at 43.3%... "Seoul Concentration Fuels Financial Imbalances"

According to the “Financial Stability Report” released by the Bank of Korea on the 23rd, the market capitalization of apartments in Seoul reached 1,817.6 trillion won as of the end of November this year. This represents a 43.3% share of the national total, surpassing the previous peak of 43.2% recorded at the end of August 2020. Seoul’s share of total household loans (based on deposit-taking institutions) also rose to 34.2% as of the end of September this year. This differentiation in the housing market is attributed to structural factors such as increased demand for housing in Seoul and other preferred areas, as well as interregional population migration. Jang Jeongsu, Deputy Governor of the Bank of Korea, stated at the Financial Stability Report briefing, “Due to strengthened tax policies for multi-homeowners, demand for a single high-value property in preferred locations like Seoul has increased, and the proportion of non-residents purchasing homes in Seoul remains high compared to the past. In addition, with continued population inflows-especially among the younger generation-housing demand in the Seoul metropolitan area, which accounts for half the country’s population, is expanding further.”

The continued rise in housing prices in Seoul and the surrounding metropolitan area could potentially amplify financial imbalances and other latent risks, warranting caution. According to the Bank of Korea’s housing market risk index, Seoul’s index peaked at 0.87 in 2021, then declined, but has surged again since 2025, reaching 0.9 in the third quarter-surpassing its previous high. The metropolitan area has shown a similar trend, approaching its previous peak. The ratio of apartment market capitalization to regional GDP in Seoul and the metropolitan area has also risen sharply since last year, reaching previous highs. This indicates that housing prices have become significantly high relative to the size of the real economy in these regions. The Financial Vulnerability Index (FVI), which reflects medium- to long-term vulnerabilities in the financial system due to sustained housing price increases in Seoul, also rose slightly to 45.4 in the third quarter of this year, up from 43.9 in the first quarter, nearing the long-term average of 45.7 (since 2008).

60.2% of Rental Contracts Are Monthly Leases... Financial Health of Vulnerable Households at Risk

The proportion of lump-sum deposit (jeonse) contracts in the domestic rental market is decreasing, while monthly rental transactions are on the rise. The share of monthly rental contracts exceeded the long-term average in September 2021 and has continued to climb, reaching 60.2% as of October this year. In apartment rental transactions as well, jeonse contracts are declining, with quasi-monthly rentals increasingly replacing them. Deputy Governor Jang noted, “The recent increase in monthly rental transactions is largely due to heightened risks related to deposit refunds caused by jeonse fraud and the tightening of regulations on jeonse loans, which have boosted demand for monthly rentals.”

The expansion of monthly rentals could help enhance financial stability by reducing household debt and dampening volatility in the housing market. While the jeonse system has played a positive role by alleviating housing costs and serving as a stepping stone for homeownership, it has also influenced sales prices and contributed to market volatility-especially during periods of rising home prices, when gap investments have further amplified price fluctuations.

However, the increased burden of housing costs due to monthly rent payments may negatively affect the financial health of some vulnerable households. According to the Bank of Korea’s estimates of changes in housing cost burdens (relative to income) by household due to the shift to monthly rentals, low-income households are experiencing a relatively larger increase in housing costs. For example, for households in the lowest income quintile living in apartments, the ratio of housing costs to income was 17.4% under jeonse contracts, but rose to 21.2% under monthly rentals (assuming a 10% conversion of the deposit). Deputy Governor Jang pointed out, “The expansion of monthly rentals could reduce the consumption capacity of low-income and vulnerable households or increase their debt repayment burdens.”

Rental and lease listings are posted on the bulletin boards of real estate agencies in Seoul. Photo by Yonhap News

"Betting on Price Increases, Buying Homes Without Maximum Leverage"... Warning Signs of Household Debt Re-Expansion

Another recent change in the housing market is that, despite the slowdown in household debt growth, Seoul’s housing prices continue to rise. Whereas in the past, household loans and housing prices tended to move in tandem, this relationship has weakened. Deputy Governor Jang explained, “Previously, rising housing prices were clearly associated with increases in mortgage lending, but this year, the growth of mortgage loans has been restrained due to efforts to manage household debt. Nevertheless, housing sales prices in Seoul and elsewhere are still on the rise.” This is attributed to the continued expectation of rising home prices and increased home purchases using personal funds.

The Bank of Korea warns that if the recent upward trend in housing prices spreads from regulated areas to other regions with fewer borrowing restrictions, household debt could begin to increase again, particularly in those areas. A renewed expansion of household debt could also heighten housing price volatility. In previous periods of rising home prices, price increases in the three most sought-after districts in Seoul (Gangnam, Seocho, Songpa) typically spread to other parts of Seoul and the metropolitan area with a time lag. Deputy Governor Jang emphasized, “If expectations for further home price increases rise after next year, housing transactions may increase and household debt could rise again. It is clear that continued vigilance is necessary.”

View of apartments and other buildings from Namsan, Seoul. Photo by Yonhap News Agency

The Bank of Korea stressed that, above all, it is important to maintain a consistent macroprudential policy stance in response to financial stability risks in the housing market. Deputy Governor Jang stated, “Considering the concentration of population in the metropolitan area, the direction of macroprudential policy should focus on addressing financial imbalances in the metropolitan housing market, while micro-level supplementary measures should be implemented for the non-metropolitan housing market for the time being.” The analysis also highlighted the importance of effective government policies to increase housing supply. Policy tools are also needed to minimize the increase in housing cost burdens for vulnerable groups resulting from the expansion of monthly rentals. Deputy Governor Jang added, “From a medium- to long-term perspective, the government should expand industry and infrastructure in non-metropolitan regions to alleviate imbalances in regional housing markets, thereby enabling housing prices in these areas to recover based on stable demand.”

Regarding the land transaction permit zones (Toheoguyeok) designated across all areas of Seoul, Deputy Governor Jang commented, “Some have called for easing these regulations, but since expectations for rising home prices remain high, it is necessary to strengthen housing market stability and household debt management first, and then comprehensively review the regulatory situation before making any adjustments.”