According to the annual housing pricing index by the Kookmin Bank, property prices, which had been rising until early 1997, plunged in 1998. The index for the price of apartments, at 55.8 in 1997, dropped to 48.2 the next year. The figure by itself suggests a 14 percent drop, but in fact the price of apartments in the Seoul metropolitan area plummeted by over 20 percent in less than a year. This was due to a sharp drop in income levels after rigorous lay-offs and restructuring. The decision by the International Monetary Fund to raise interest rates and a sharp increase in mortgage rates resulting from lack of liquidity were an additional blow. According to the Bank of Korea, certificates of deposit soared from 13.8 percent in Oct. 1997 to 23.1 percent in Jan. 1998.

The drop in housing prices now is also related to the increase in interest rates. Between late 2002 and late 2005, property prices soared as the interest rate linked to the certificate of deposit was low -- 4.9 percent in late 2002 and 4.04 percent in late 2005. But when interest went up from 4.76 percent in late 2006 to 5.73 percent in late 2007, the real estate market began to freeze. A record number of homes remain unsold, and the current figure of 161,000 as of July 2008 is comparable to the 103,000 unsold homes in 1998.

But of course there are differences between now and 10 years ago. The interest rate itself is conspicuously lower now than in 1998, and the real economy is not as unstable. Also, various other factors contributed to the rise in the housing prices since 2000, such as the recovery of the economy, expansion of mortgage loans by banks, and measures to stimulate the property market by the Kim Dae-jung administration.

(englishnews@chosun.com )