1n the 1980s, Japan was the richest country in the world, and there was even an expression stated that “Japan can buy the United States when Japan sells Tokyo.” Actually, according to the Wall Street Journal, in 1988, 33 of the world’s 50 largest companies were Japanese by market capitalization – indicators of how large the stock market is – and, 16 Japanese companies ranked 20th. In addition, the world’s No.1 company was NTT in Japan, and IBM in USA followed as No.2 NTT’s market capitalization was more than three times that of IBM.
  The reason why Japan was enjoying such an economic boom was not the development of innovative technologies and management models, the lowering of interest rates and lifting of lending regulations. Therefore, many investors flocked to Japanese real estate for speculation purposes and the value of assets such as stock prices and real estate suddenly exploded. It was an artificial value rise due to an unsustainable policy, and by no means a normal rise. A bubble economy means that a price becomes much higher than the normal price or actual value.
  Japan’s bubble economy didn’t last long. In 1985,  the G5 – a group of Finance Ministers and Central Bank Governors from the United States, Britain, Germany, France and Japan – signed the ‘Plaza Agreement’ to correct the strength of the US dollar, so the value of the dollar had fallen and the value of the yen had risen. Therefore, Japanese companies, which enjoyed a boom in exchange rate competitiveness, had difficulty to export, and the Japanese government implemented financial easing polices to resolve the problem. As the Japanese government regulated lending and raised interest rates, the value of real estate fell at the end of 1990 and the bubble started to burst in earnest from April in 1991. Japan’s economic boom period ended as apartment and land prices fell below half the value nationwide, and ghost towns, where development had stopped around large cities, continued to rise.
  Currently, Korean house prices are dramatically rising. Therefore, many people assume that Korean real estate is similar to Japanese real estate in 1990 and that Korean real estate is also a bubble which may burst at any moment.
  However, I don’t think that Korean real estate is a bubble. It is true that there are a lot of similar things between current Korea and 90’s Japan. Both the current Korean real estate value and the 90’s Japanese real estate values were dramatically rising while interest rates were low. In addition, Korea, like Japan, has long since arrived in an aging society and a low birth rate society, which has led to the emergence of urban centralization, resulting in many ghost cities in the provinces. However, there are some important differences. Firstly, the Korean LTV (Loan to Value Ratio) is limited to 40%, but Japanese LTV was 200% during the bubble economy. Secondly, Korea has a policy of curbing loans, and Japan had a policy of recommending loans. In Korea, housing can be bought at a low cost due to the charter system, creating a real estate bubble, but it is different from bubbles created by randomly releasing money like Japan. This means that the causes of bubbles are fundamentally different. Thirdly, Korea has risen in step with global real estate trends, while Japan had risen alone while global real estate trends were falling. Lastly, Korea has currently implemented a real estate policy based on a supply restriction, but Japan had implemented a policy of expanding the supply to the extent that a company could build a new city.
  As such, the situation between Korea and Japan in the 1990s is different. Japanese real estate had enjoyed a boom made from loans, but Korea is regulating loans. Therefore, it seems too early to assert that there is room for a sharp drop in Korean real estate like Japan in the 1990s. It is my opinion that there will be a decline in Korean real estate in the future, but there will be no plummet as we saw in Japan in the 90s.