SEOUL — Seo Hong Seok was unimpressed with the two-bedroom apartment he looked at in December. The 27-year-old unit had cracks in the outside walls and peeling paint.

Six months later, the flat's value had risen 55 percent and Seo, 40, hurried to buy a smaller, 270-square-foot unit in the same complex for $381,000, 15 percent more than he could have paid for the other apartment.

"I was surprised by the sharp price increase in such a short time amid a global recession but I don't think it is too late," said Seo, a product designer at an audio systems manufacturer. "Housing prices have much more room to go up further as the economy is recovering."

Seoul's expensive southern suburbs turned from bust to boom thanks to the efforts of President Lee Myung-bak, a former construction executive. A $52 billion stimulus package, lower capital gains tax and new rules to encourage reconstruction of older buildings have combined with record-low interest rates to bring back queues of homebuyers eager to pay their deposits.

South Korea's home sales jumped to 92,288 units in March, the highest since July last year, according to the Ministry of Land, Transport and Maritime Affairs. Home prices rose for a second month in May from a month earlier, according to Kookmin Bank, the nation's biggest lender.

Buyers looking to make a quick profit target older low-rise blocks that may be bought by a builder for redevelopment. The government in November raised the floor space to land ratio to 2.5 times from 1.9 times, allowing developers to replace old, low-rise buildings with more profitable high-rise blocks.

BUBBLE DISTRICT

The changes may have already had some effect. Developers received 6,926 construction permits in May, 54 percent more than in January, and the number of unsold new homes dropped 7 percent over the period to 151,938.

The rebound started in southern Seoul, scene of the biggest price fluctuations in the past three years. Between November 2005 and August 2008, average prices in Kangnam, Seoul's most expensive district, rose as much as 28 percent before dropping more than 8 percent from September 2008 to January 2009, according to Kookmin Bank.

In Seo's Gaepo-dong complex, the 375-square-foot apartment sold for a record $558,000 last month, beating the $526,000 set early last year and up from $330,000 in December, according to Jeong Ai-nam, a local realtor. If the five-story block is demolished in a few years and replaced with an 18-story building, as the new rules allow, the buyer would make a profit of at least 30 percent, said Jeong.

"Nobody wanted to buy late last year," Jeong said. "Now it's very difficult to find anything on sale as owners are reluctant to sell, expecting higher prices."

CHEAPER MORTGAGES

South Korea's $929 billion economy grew 2.3 percent in the second quarter from the first, expanding at the fastest pace in almost six years. The central bank has cut borrowing costs by 3.25 percentage points since October, the most aggressive easing since it began setting a policy rate a decade ago.

Price gains in southern Seoul have spread to other suburbs. At the planned free economic zone in Incheon, 25 miles from the capital, orders exceeded apartments for one block by 20 times at a sale in June. For the three penthouses, 297 people applied, builder SK Engineering & Construction Co. said.

South Korea's housing market is not alone in staging a revival. The number of Hong Kong homes sold in June rose 17 percent from May to 13,805, the most since January 2008, the city's Land Registry reported. In Singapore, prices of homes in the central area rose 11 percent in the second quarter, to $858 per square foot, property consultants DTZ said.

GOVERNMENT ACTION

Seoul's housing recovery may halt if the central bank abandons its bias in favor of lower interest rates. The government may do more within "two to three weeks" to cool property-market speculation, said Chung Jong-hwan, the land, transport and maritime affairs minister.

The government "sees speculative demand in some areas and we won't allow it," Chung, said in an interview in Seoul. He didn't specify the measures.

"The property market is the most sensitive to interest rates and government measures," said Kim Seong-hye, a realtor in the capital. "Even a small interest-rate hike would dampen market sentiment."

The Bank of Korea is monitoring a "big" increase in mortgage lending and real estate prices, Governor Lee Seong Tae said on July 9.

Bank lending to households expanded in June by the most in more than two years on demand for mortgages, the central bank said on July 8. Mortgage lending increased $2.75 billion last month, the most since November 2006.

FAMILIAR WITH CRISIS

The financial regulator said July 6 it will tighten loan regulations for people purchasing homes in Seoul and surrounding areas to stem the surge in borrowing.

The price rebound mirrors the recovery after the 1997-98 Asian financial crisis, when apartment prices in southern Seoul jumped 15 percent in 1999 after tumbling 14 percent in 1998, according to Kookmin Bank.

"For other countries, this crisis is the worst since the Great Depression," said Kwon Joo-an, a senior research fellow at Korea Housing Institute. "South Koreans have experienced crisis before and have learned that investors who buy houses during a crisis make a lot of money."