The International Monetary Fund(IMF) has warned that South Korea could see a sharp drop in housing prices due to price adjustments and interest rate hikes.

The organization issued the outlook in its report titled “Housing Market Stability and Affordability in the Asia-Pacific Region” posted on its website on Thursday.

The IMF made the projection after analyzing downside risks to housing markets, including housing price misalignment, short-term interest rates, household credit and housing price momentum.

A surge in demand for housing resulting from teleworking, low mortgage rates and the government’s accommodative monetary policy stances drove up house prices in the Asia-Pacific during the COVID-19 pandemic, according to the report.

It went on to say that this led to “sizable price misalignment and a marked increase in downside risks to housing prices going forward, in the order of five to 20 percent in some countries.”

The organization assessed that as of the fourth quarter of 2021, downside risks to housing price growth have increased significantly, adding that South Korea and Australia could see their growth at the end of the year come in around ten percentage points lower than the fourth quarter of 2019.

It added that rising interest rates will add to downside price risks, forecasting that a 300-basis-point increase in interest rates can further reduce housing price growth by more than five percent for the next two years.