One in Five Villas in Seoul Are 'Kkangtong Jeonse'... What If Housing Prices Fall Further?

[Asia Economy Reporter Kim Min-young] Among the 25 autonomous districts in Seoul, Gangseo-gu was found to have the highest proportion of "empty-can houses." Additionally, in the first half of this year, one out of five new villa (row house/multi-family) lease transactions in Seoul had a lease price ratio exceeding 90%, classified as "empty-can leases." As signs of house price declines emerge due to weakened buying demand, concerns about the risk of empty-can leases?where lease prices are higher than sale prices?are growing.

Real estate platform Dabang conducted a full survey of 3,858 lease transactions of newly built villas in Seoul constructed in 2021 and 2022, based on actual transaction data from the Ministry of Land, Infrastructure and Transport. The results showed that 21.1% (815 cases) of all lease transactions in the first half of this year had a lease price ratio exceeding 90%. Among these, 593 cases had lease prices equal to or higher than sale prices. The lease price ratio is the ratio of lease price to sale price, and the industry generally considers a lease price ratio above 80% as indicating a high risk of empty-can leases.

By district, Gangseo-gu in Seoul had the highest proportion of empty-can houses. Out of a total of 694 lease transactions, 370 cases (53.3%) were empty-can houses with a lease price ratio over 90%. Notably, 82.2% of these empty-can houses in Gangseo-gu were concentrated in Hwagok-dong (304 cases). Hwagok-dong in Seoul is an area with many villas, including multi-family, row houses, detached, and semi-detached houses. It is one of the neighborhoods with high residential demand due to relatively lower house prices compared to nearby areas.

The next highest area was Yangcheon-gu, where 48.7% (113 out of 232) of lease transactions had a lease price ratio over 90%. Gwanak-gu had 44 out of 91 cases (48.4%), and Guro-gu had 42 out of 114 cases (36.8%), all showing proportions of empty-can houses above the Seoul average.

In Jongno-gu, Dobong-gu, and Seodaemun-gu, although the number of new villa lease transactions was not large?14, 45, and 41 cases respectively?the number of empty-can houses was 4 (28.6%), 11 (24.4%), and 7 (17.1%) respectively. In contrast, No won-gu, Yongsan-gu, and Jung-gu had no transactions classified as empty-can leases.

Moreover, with recent base rate hikes and the resulting weakening of buying demand, leading to a more pronounced decline in house prices, the number of apartments nationwide with lease price ratios exceeding 80% is increasing.

According to the Korea Real Estate Agency’s June nationwide housing price trend survey, among 187 cities, counties, and districts nationwide, 19 areas recorded apartment lease price ratios exceeding 80%. The highest lease price ratios were recorded in Gwangyang, Jeollanam-do, and Buk-gu, Pohang, Gyeongsangbuk-do, both at 85%. In the Seoul metropolitan area, Icheon and Yeoju in Gyeonggi Province showed lease price ratios of 82.4% and 84.2%, respectively.