The trend of learning real estate as if chasing popular instructors… Sharing popular complexes with peers
While apartment market transactions increased across the board in the first half of this year, regional concentration has intensified. According to an analysis of data from the Korea Real Estate Board by real estate research firm Real Today, the number of apartment transactions in the metropolitan area (Seoul, Gyeonggi, and Incheon) in the first half of this year was 103,175. This is a figure that is more than three times higher than the low point in the second half of 2022 (33,891 cases). The apartment transaction prices in the metropolitan area also showed a notable upward trend. The apartment transaction price index in the metropolitan area has increased for the past three consecutive months, increasing by 0.05% in May, 0.26% in June, and 0.58% in July. On the other hand, the local apartment market is not able to avoid weakness. The local apartment transaction price index has continued to decline, with -0.10% in May, -0.17% in June, and -0.14% in July.
Seoul, regional differences in housing price increase rates widen
According to the Bank of Korea’s August Consumer Trend Survey, the housing price outlook index rose 3 points from the previous month to 118, the highest in 2 years and 10 months since October 2021 (125). The housing price outlook index is an indicator that reflects the outlook for housing prices one year from now, and a value above 100 means that there are more consumers who believe that housing prices will rise one year from now. On August 8, the government announced that it would supply about 427,000 housing units in the metropolitan area in the future through methods such as lifting the greenbelt. Despite this policy, it is interpreted that market participants do not feel certain stability in the future housing supply.
As the rise in housing prices is particularly noticeable in Seoul, especially in Gangnam and other well-located areas, attention is focused on the future direction of the market. Will the phenomenon of “one smart house”, where prices only go up, worsen, or will the upward trend spread to less-increased areas? In order to predict the micro-trend of the housing market in the future, it is necessary to closely analyze the changes in apartment market trends and price increase factors over the past year. Compared to local areas that are still weak, housing prices in Seoul have turned upward this year. Even in Seoul, there is a big difference between Gangnam and the downtown area and the outskirts.
According to an analysis of the apartment price fluctuation rate by district in Seoul over the past year (as of August 12 this year compared to July 17 last year) based on KB Real Estate prices, Songpa rose the most at 5.7%. Seongdong (5%), Gangnam (4.7%), Gangdong (4.7%), and Seocho (4%) followed. Other areas that rose by more than 2% were downtown areas with high market preference, such as Yongsan, Mapo, and Jung-gu. On the other hand, areas outside Seoul, such as Geumcheon, Nowon, Dobong, Gangbuk, and Jungnang, fell by more than 2%. Busan showed the largest decline in the apartment transaction price fluctuation rate in the provinces over the past year, at -3%. Gwangju (-2.7%) and Gyeongnam (-2%) also fell, showing a continued weakness in the provincial apartment market, except for Gangwon, Chungbuk, and Daejeon.
How can we interpret the recent strong preference for Seoul? There are two main reasons for this. First, government policies such as housing mortgage loans and tax systems that affect housing prices. Apartments are essential as living spaces, but they are also investment goods with large price fluctuations. Therefore, housing market participants are bound to be greatly affected by government policies.
A smart one has a lot of preference
Compared to previous governments, the Yoon Seok-yeol government has preferred market principles rather than direct intervention in the housing market, and has preferred indirect regulation using the ‘pincer’ method when necessary. It has continued with pro-market policies such as lifting regulations on high-priced apartment loans exceeding 1.5 billion won and easing limits on government special loans. It has also eased the comprehensive real estate tax that had been shackling owners of high-priced apartments in Gangnam and those with multiple homes. This has reduced the burden of purchasing and owning high-priced apartments. However, the relaxation of the acquisition tax for those with multiple homes failed to pass the National Assembly and was left in place. Since the burden of the acquisition tax remains, rather than seeking profits by investing in multiple homes, investment demand has increased for those who move to a good location and have high potential for price increase by purchasing one or temporarily owning two homes. As a result, housing prices in Seoul are rising significantly, especially in Gangnam and downtown areas.
Second, there is a change in the real estate market trend. Recently, people in their 30s have emerged as the most important buyers in the Seoul apartment market. For them, apartments are not only a place to live but also the most important investment target. This is because the speed of asset growth varies greatly depending on where the apartment is located. Therefore, even if they cannot live there right away, they expect to see an early increase in assets by including a well-located property in their portfolio.
People in their 30s are the ‘academy generation’ who prepared for the college entrance exam through daily lecturers. They also tend to learn real estate investment as if they were chasing popular lecturers. They quickly read the market trends and follow investment methods while ‘going to’ the field with peer groups with similar interests. Popular complexes that they have identified and verified with their own understanding are shared as ‘correct answers’ through social network services (SNS). The prices of one or two houses traded are also shared in real time. The older generation’s belief that “my house is the best when you live there” is no longer valid. Young market participants thoroughly verify real estate locations and evaluate them with numerical scores. Recently, purchases have been continuing, centered on large complexes with good locations and favorable conditions. This phenomenon is expected to worsen as the young generation enters the real estate market at an accelerated pace.
Residents from other regions have also joined the ranks of buyers in popular areas of Seoul. According to data from the Korea Real Estate Board, the proportion of residents from other regions among Seoul apartment buyers exceeded 20% in February of this year. In Songpa, where housing prices rose the most in the past year, the proportion of purchases by residents outside of Seoul has exceeded 22% since February. The situation in Gangnam is similar.
Another new trend is the recent unusually high preference for newly built apartments. The 84㎡ ‘Heukseok Jai’ in Heukseok-dong, Dongjak-gu, which was occupied in February of last year, was sold for 1.75 billion won in July, setting a new record. According to the Korea Real Estate Board, the price of newly built apartments (completed within 5 years) in Seoul in July rose 2.34% compared to the previous month. This is twice the overall apartment price increase rate in Seoul (1.19%) and is the highest increase rate since related statistics were first compiled in 2012. On the other hand, the price increase rate for old apartments completed over 20 years ago was only 1.01%. Looking at the price increase rate of newly built apartments by the five regions of Seoul, the southeastern region, which includes the three Gangnam districts and Gangdong, showed the largest increase of 3.54%. The northwestern region, which includes Mapo, Seodaemun, and Eunpyeong, followed with a 2.76% increase. In the downtown area including Yongsan, Jongno, and Jung-gu, the price of newly built apartments rose by 2.72%. On the other hand, in the southeastern area including the three districts of Gangnam, the price of old apartments that were completed more than 20 years ago rose by only 1.77%.
Key variables are lending and tax policies
Why is demand so focused on newly built apartments? It is because the demand for reconstructed apartments with slow progress has decreased significantly in a situation where the number of apartments available for occupancy in Seoul is decreasing. In particular, young people seem to be attracted to new apartments with good facilities right now rather than enduring inconveniences in old apartments and expecting future profits. Since loans are limited, reconstructed apartments with low jeonse prices and high sales prices are difficult to move into because of the large self-financing burden, and gap investment is not easy. In that sense, there are many realistic limitations for them to become investment targets for people in their 30s.
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So how will housing prices move in the future? The most important key to the market direction is likely to be government policy. In particular, the strengthening of housing mortgage loans (housing mortgage loans) and the expansion of the application of the land transaction permit system are likely to be major variables. According to the recently announced implementation policy of the second-stage stress total debt service ratio (DSR), a stress rate will be added to the housing mortgage loans of banks in the metropolitan area. The stress DSR is a system that calculates the loan limit by imposing an additional rate (stress rate) on the loan interest rate. If the stress rate reflecting the risk of future interest rate volatility is added, the loan limit will be reduced. According to the simulation results of the financial authorities, if a borrower with an annual income of 50 million won borrows a 30-year floating rate (assuming a loan interest rate of 4.5%), the limit before the introduction of the second-stage stress DSR was 329 million won. However, starting in September when the second-stage stress DSR is applied, the limit for housing loans in the metropolitan area will be reduced by 42 million won to 287 million won. Housing loans in non-metropolitan areas will be reduced by 27 million won to 302 million won. The reduction in loans is expected to temporarily slow down the housing market’s upward trend for the time being. However, if interest rates fall as expected after September, the loan limit reduced by the DSR enhancement may be restored. In this case, investment sentiment will increase again. In that sense, the current level of strengthened loan regulations may not be the ultimate solution.
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In the future, the rise in housing prices centered around Gangnam may spread to the outskirts of Seoul or the metropolitan area. This is because housing prices in major areas of Seoul may rise so much that consumers may look to other areas, resulting in a balloon effect. If the housing supply expansion policy fails to reassure real estate market participants, market anxiety will grow over the next two years as the number of available properties decreases. In this regard, while considering external variables in the housing market such as future real estate policies and interest rates, it is necessary to pay attention to the outskirts of the metropolitan area or new cities where prices may rise due to future development windfalls.
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〈This article Weekly Donga Published in issue 1454〉
Ahn Myeong-suk, Managing Director of Lucent Block Real Estate
2024-08-25 09:17:41