Apartment prices in South Korea increased at a faster rate in the first quarter compared with a year earlier, data showed Friday, reflecting growing demand for property purchase amid low interest rates.

On a nationwide basis, prices gained 0.87 percent on-year in the January-March period, accelerating from 0.67 percent growth in the previous year, according to Kookmin Bank's index measuring property price fluctuations. Kookmin Bank is the flagship of the country's second-largest banking group KB Financial.

Prices of apartments in the Seoul area shot up 0.75 percent, with its pace nearly doubling from 0.39 percent a year ago.

Overall, apartment prices in the metropolitan area jumped 0.95 percent, compared with 0.54 percent.

The bank data, meanwhile, showed that prices of so-called "jeonse" apartments across the country increased 1.28 percent in the three-month period, slowing from a 1.75 percent gain a year ago.

Jeonse is a local property lease system in which tenants pay a large deposit in place of monthly rent. It usually involves a two-year contract.

Supply for such contracts has been dwindling as landlords are increasingly opting for monthly payments amid low interest rates.

Under the jeonse system, home owners profit from the return on deposits.

"Since the policy rate fell to the 1-percent level, most home owners are expected to shift to the monthly payment system, which will worsen the demand-supply imbalance in the jeonse market," said a bank official.

Earlier this month, the Bank of Korea unexpectedly slashed the base rate to a record-low of 1.75 percent, citing the need to act preemptively against slowing growth.

The latest rate cut marks the third rate cut in the past year, with the central bank lowering the key rate by a quarter percentage point each in August and October. (Yonhap)