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South Korea’s retail investors are ploughing profits from a world-beating stock market into an overheated property sector, confounding government efforts to cool real estate demand.
Securities sales proceeds were used in 13.2 per cent of home purchases worth more than Won1.5bn ($974,000) in April, according to data from the land ministry, the first time the figure reached double digits and nearly triple the monthly level in most of the past five years.
“If people made a lot of money on stocks, it’d end up going back into the property market,” said Kim Won-ik, a tech worker based in Yongin, south of Seoul, who recently made Won20mn from stocks. “The result will be a vicious circle, not a virtuous one.”
For years, South Korea’s government has struggled to convince its citizens to invest more in domestic equities and less in the overheated property market, which it blames for rising inequality and plunging birth rates as elevated housing costs deter couples from starting families.
President Lee Jae Myung took office last year vowing to pivot more of the country’s wealth away from “unproductive” real estate investment.
Since the start of the year, South Korea’s Kospi stock benchmark has more than doubled, on track to being the world’s best-performing major index for a second year. Much of it has been driven by chipmakers Samsung Electronics and SK Hynix, which are benefiting from an expansion of AI data centres.
SK Hynix became the country’s most valuable company on Monday, overtaking Samsung, which had held the top spot for more than 20 years.
Despite the rally, property still accounts for 75 per cent of household wealth, far above levels in other rich countries and dwarfing the 9 per cent held in equities, according to Kathleen Oh, an economist at Morgan Stanley. Household debt in South Korea is nearly 175 per cent of net disposable income, the sixth highest in the OECD.
Part of the over-concentration can be explained by the Kospi’s moribund performance before the AI boom. The index rose 25 per cent between 2015 and 2025, compared with a more than 50 per cent jump in average Seoul property prices in the same period, according to Kookmin Bank data.
The top policy adviser to South Korea’s president warned of unintended consequences from the stock gains, including surplus capital fuelling property investment.
“If the national wealth generated by the semiconductor industry is absorbed into unearned real estate income, and the fruits of growth are concentrated only among a select few, this boom will not last long,” Kim Yong-beom said in a social media post on Saturday.
Seoul home prices rose 3.1 per cent between the end of January and the end of May, while prices across the wider capital region climbed 1.9 per cent, according to Kookmin.
The increases come despite a raft of policies aimed at cooling the market. The government has tightened lending, restricted transactions in popular districts, imposed tougher loan caps on expensive homes and revived tax penalties for multiple-home owners.
“Changing a mindset shaped over three or four decades is hard,” said Namuh Rhee, chair of the Korea Corporate Governance Forum.
Morgan Stanley’s Oh argued the stock rally could spur change, noting that half of South Korea’s population now had brokerage accounts, compared with 21 per cent in 2019, and that the public was better educated on equities than before.
“At lunch, all people talk about is: ‘What stocks are you in? How much did you make,” said Kim Min-jung, an office worker in Seoul. “If you don’t trade stocks, you look like an idiot.”
There are signs of overheating. In early June, the Kospi volatility index hit an all-time high of 94. Margin trading debt has surged to a record Won37tn, as retail investors borrow to amplify bets.
More than Won7tn has poured into leveraged single-stock exchange traded funds tied to Samsung and SK Hynix since their introduction in late May. Some ETF holders suffered huge losses after the Kospi fell 8 per cent in one day this month.
Lee Chan-jin, head of the Financial Supervisory Service, expressed regret on Monday for an ETF rollout that he said had been done “in a hurry”.
“Since most investors are middle-class and working-class individuals, exposure to sudden volatility could deliver a significant shock,” he said.
Kim Min-jung, the office worker, said it would be hard to convince people to shift away from property despite the government’s efforts.
“The mentality is if I just make a little money [from stocks], I can become part of the 1 per cent, I can buy a house in [the wealthy district of] Gangnam, and I can live a successful life,” she said.