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Yahoo! My Yahoo! Mail More Yahoo! Services Account Options New User? Sign Up Sign In Help Yahoo! Search web search Home Singapore Asia Pacific World Business Entertainment Sports Technology Singapore Asia Pacific World South Korea's c.bank ready to clamp down on housing boom Reuters - Monday, October 5 Send IM Story Print By Jack Kim and Yoo Choonsik SEOUL, Oct 5 - Would-be home owner Hwang Min-soon is the sort of bullish property buyer who may prompt the central bank to break ranks with the G20 and raise interest rates. She is considering the purchase of a 104 square metre apartment in Seoul, where property prices have defied the global financial crisis to rise 20 percent since the start of the year. When asked the sort of return she expected on her investment, Hwang replied: "In the next two to three years, I'd say 70 to 80 million won." That would be in the order of 30 percent. Property prices in South Korea are rising rapidly and, since urban South Koreans show no sign of losing their voracious appetite for property, so, more worryingly, are mortgages. The central bank slashed its interest rates to a record low of 2 percent to support the economy during the crisis. But it is now highlighting the property binge as reason enough to start raising them, even if that means breaking ranks with its G20 partners who have pledged to keep stimulus measures in place. Financial regulators are also ready to impose more controls on home loans. The central bank meets later this week, although it is not expected to change rates. However, financial markets have priced in the risk of a rate rise as early as November. If the global downturn has hammered property prices in the United States and other leading economies, those in the Seoul metropolitan region -- which houses half South Korea's population -- have hardly paused for breath. Still, most of the rally may be over and buyers like Hwang may be not get the returns they are looking for. A Reuters poll of property consultants, analysts and economists forecasts house prices are set to rise another 1-2 percent by the end of 2009 and another 3.3 percent in 2010. That would be a sharp slowdown from the heady pace seen so far this year and certainly not the returns that Hwang and others are hoping for. Indeed, the poll suggested that prices will rise a further 6.5 percent from current levels before peaking sometime in the next few years. For the poll [ID:nT117819] [ID:nHKG221983] If history is anything to go by, the property rally may well be far from over. Since the Asian financial crisis in 1997/98, property prices in Seoul have more than tripled. Increases are even bigger in southern Seoul, where a reputation for good schools and large capital gains are driving demand. South Koreans put nearly 80 percent of their assets into real estate, compared with barely half in advanced economies where more investment goes into areas like pensions. Mortgage loans, for instance, have risen for eight consecutive quarters despite the economy's slide during the global financial crisis. The appetite for real estate, say analysts, makes the financial system more vulnerable to a house price bubble, which has been fuelled partly by a wave of cheap money pumped into the economy by the government to ease the pain of the downturn. The property rally has also been spurred by pent-up demand after authorities last year repealed measures imposed in 2006 and 2007 to clamp down on the last speculative wave of house buying. It risks, says the central bank, getting out of hand. So it has threated to raise rates. The finance ministry is opposed to the idea in case higher borrowing costs damages the economy. While financial markets suggest a rate rise could happen as soon as November, many analysts see them on hold until next year. "The Bank of Korea is very concerned the housing market and household debts have just kept expanding even through the crisis period," said Song Jae-hyeok, an economist at SK Securities. DEBATE ON CENTRAL BANKING Korea is not alone is seeing the danger of an asset bubble forming in its housing market. Australia's central bank has flagged similar dangers and markets say it could raise rates as soon as Tuesday. Property prices are rising sharply in China, Singapore and Hong Kong. Central bankers, including those in the United States and Europe, are debating whether interest rates -- usually a weapon that impacts an economy broadly -- is the right tool to clamp down on speculation in a single sector. An International Monetary Fund report published recently pointed out that central bankers could have helped prevent the current crisis that was sparked by housing prices bubbling over. 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