South Korean President Lee Jae Myung warned that Seoul’s overheating real estate market risks triggering a prolonged economic downturn similar to Japan’s “lost decades,” prompting fresh debate over household wealth concentration as his administration prepares new property tax revisions. Speaking during a public discussion on real estate policy on Thursday, July 19, 2026, President Lee invoked Japan’s early 1990s property and stock market crash, noting that Tokyo’s housing market had “burst like a balloon” and left the country facing decades of stagnant growth.
According to data cited during the public discussion, real estate accounts for the largest share of South Korean household wealth, making the country one of the most property-reliant economies globally. As of the end of March 2025, real assets accounted for 75.8% of Korean household assets, while financial assets comprised just 24.2%.
The administration has previously attempted to steer household wealth out of housing and into the capital markets. Ahead of the 2025 presidential election, when the benchmark Kospi index hovered near 2,500, Lee pledged to resolve the “Korea discount” with a target of 5,000 for the Kospi during his term. Riding an artificial intelligence-fueled chip boom, the index briefly crossed 5,000 in January 2026, just over six months after he took office. The benchmark currently hovers around 6,700, though it has experienced sharp volatility driven by heavy dependence on market heavyweights Samsung Electronics and SK Hynix.
### Economist Reactions and Debt Risk Assessments
Despite the presidential warning, financial analysts suggest that direct comparisons to Japan’s historic economic collapse overstate the immediate danger to South Korea’s financial system.
“I think the probability of a real asset bubble burst in Korea is limited,” Kang Min Joo, senior economist for South Korea and Japan at ING, told CNBC. Kang noted that mortgage lending conditions have remained tight for several years, with authorities enforcing strict controls on loan-to-valuation (LTV) and debt-to-income ratios. While the LTV ratio previously reached as high as 80%, Kang pointed out that it has fallen below 40% and even lower in the Seoul metropolitan area.
South Korea’s household debt-to-GDP ratio stood at 90.14 as of 2024. While down from a record high of 98.67 in 2021, it remains the second-highest in Asia, trailing only Australia. Lee’s remarks reflect growing policy anxiety over recent increases in housing prices rather than an imminent asset crash, according to ING’s analysis.
Gareth Leather, senior economist for Asia at Capital Economics, shared a similar perspective, calling fears of a domestic property bubble “exaggerated.” Leather observed that while property prices are climbing rapidly in Seoul, valuations in the capital sit only about 10% above their levels from January 2022. In contrast, property prices in regional cities like Busan have dropped to roughly 80% of their January 2022 values. Furthermore, strict requirements for large down payments minimize the risk of borrowers sliding into negative equity and placing commercial banks in jeopardy, Leather told CNBC.
### Structural Similarities and Policy Flexibility
While a twin real estate and financial market collapse akin to Japan’s 1990 crisis remains unlikely, economists point out that South Korea shares distinct structural and demographic parallels with Japan.
Ma Tieying, senior economist at DBS Group Research, noted that South Korea maintains a high credit-to-GDP ratio and a high stock market capitalization reminiscent of pre-crash Japan, leaving the economy vulnerable to higher interest rates, tighter credit conditions, and external global shocks.
At the same time, South Korea avoids several systemic vulnerabilities that plagued Japan prior to its bubble bursting. Ma highlighted that South Korea is not experiencing the massive capital inflows or persistent currency appreciation that preceded Japan’s 1990 implosion—a divergence that grants the Bank of Korea greater policy flexibility. Additionally, the South Korean central bank has acted more pre-emptively to address inflation and financial imbalances than the Bank of Japan did before raising interest rates in December 1989.
Worth a look