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Lessons from the Real Estate Bubble - Lessons Learned from the Policy Direction of the Japanese Real Estate Market after the Lehman Bankruptcy -

  • Legal Theory & Practice Review
  • Abbr : LTPR
  • 2023, 11(2), pp.371-406
  • Publisher : The Korea Society for Legal Theory and Practice Inc.
  • Research Area : Social Science > Law
  • Received : May 4, 2023
  • Accepted : May 29, 2022
  • Published : May 31, 2023

Choi, Myung-Hwan 1,  Kim, Sang-Jin 2

1세명대학교 대학원
2세명대학교

Accredited

ABSTRACT

The purpose of this article is to look back at the period called this real estate bubble and fund bubble, and to summarize what caused real estate prices to fluctuate greatly and what was happening in the real estate market along with changes in the market. The hypothesis here is that during this period, “investment funds that were not suitable for investment were inflowed and investments were made in real estate that was not suitable for investment.” Looking back at the period of this fund bubble and the booing and the financial crisis, many common economic phenomena were observed. When money flows into the real estate market, bubbles form, and conversely, when money starts to flow out of the real estate market, the bubble bursts. This study describes real estate bubbles that have occurred in the past in Japan and the United States. Aren’t real estate prices in Japan a bubble as of 2022? how about our country? Comparing Japan and the US during the past bubble period and examining whether it is a bubble based on statistical data will broaden our understanding. Although there are some differences between Japan and the United States, both cases have the following in common. The reasons for the bubble are low interest rates, active lending by financial institutions, and an increase in speculative transactions to profit from rising real estate prices. Due to low interest rates and active lending by financial institutions, speculative transactions will increase more and more than actual demand, and eventually real estate prices will rise to a level separate from the real economy. This is the emerging trend of a real estate bubble. The bubble bursts because of high interest rates and when financial institutions are reluctant to lend. When interest rates rise, the cost of acquiring real estate increases, which reduces demand. Also, if banks stop lending, it will be difficult to buy new properties. When real estate becomes difficult to buy, it becomes difficult to sell. There have already been previous studies examining the relationship between financial institutions’ lending attitude and real estate prices, and it has been found that there is a certain relationship between the financing environment of real estate brokers and real estate prices. The rise or fall of real estate prices depends on the policies of some banks. To clarify this point, it is necessary to investigate the relationship between loans and real estate prices based on statistical data. When the central bank starts raising interest rates and banks are reluctant to lend to real estate, that’s when the tide turns. When money flows into the real estate market, bubbles form, and conversely, when money starts to flow out of the real estate market, the bubble bursts. An easy-to-understand indicator is central bank interest rate hikes and cuts. Therefore, researchers, investors, and bankers alike need to continue to pay close attention to the central bank’s interest rate policy.

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