South Korean President Lee Jae Myung referenced Japan’s 1990s property market collapse during a public discussion on domestic real estate policy on Thursday, stating that some citizens were concerned about the stability of the nation’s housing market. The remarks were made as his administration reviews tax policies related to the real estate sector.
During the discussion, President Lee noted that “quite a few people” have expressed concern that South Korea could experience a prolonged period of economic stagnation similar to Japan’s “lost decades,” which followed the bursting of its asset bubble. He remarked that Tokyo’s housing market had “burst like a balloon” in the early 1990s.
Lee also highlighted the significant role of real estate in the country’s household finances. He said that real estate accounts for the largest share of household wealth in South Korea, citing figures that show real assets made up 75.8% of household assets as of March 2025, with financial assets comprising the remaining 24.2%.
Following the president’s comments, several economists provided their analysis to news media, suggesting that fears of a nationwide bubble bursting were overstated.
Kang Min Joo, a senior economist for South Korea and Japan at ING, told CNBC the probability of such an event is “limited.” She pointed to government regulations, including strict controls on loan-to-valuation (LTV) and debt-to-income (DTI) ratios. “While the LTV ratio was previously as high as 80%, it has fallen to below 40% and lower in the Seoul area,” Kang stated.
Gareth Leather, a senior economist for Asia at Capital Economics, shared a similar view, telling CNBC that “fears of a bubble appear exaggerated.” He observed that significant price increases have been concentrated in Seoul, while prices in other major cities like Busan have declined compared to early 2022 levels. Leather added that financial stability risks are mitigated because homebuyers are typically required to make large down payments.
Economists also drew comparisons between South Korea’s current financial environment and that of Japan before its market crash. Ma Tieying, a senior economist at DBS Group Research, noted that South Korea shares some characteristics with pre-crash Japan, such as a high credit-to-GDP ratio. However, she identified key differences, stating that South Korea is not experiencing the large capital inflows or persistent currency appreciation that Japan saw. Ma also said that the Bank of Korea has acted more preemptively to address inflation and financial imbalances than Japan’s central bank did in the late 1980s.
Japan’s asset price bubble, which developed during a period of speculation in the 1980s, began to deflate after its central bank started raising interest rates in late 1989. The subsequent collapse of stock and real estate values led to an extended period of slow economic growth.
