[2020 Financial Weather Forecast] Housing Market, Urgent Fire Extinguished by Regulations... Reheating in the Second Half

Comprehensive Measures Covering Taxes, Loans, and Subscription Slow Seoul's Rise in H1
Q2 as Turning Point...Potential Rebound in H2 Amid Supply Shortage Concerns

[Asia Economy Reporter Kim Yuri] 'Low at the top, high at the bottom (上低下高).' This is the forecast from most experts regarding the Seoul housing market in the Year of the Rat. Due to the high-intensity real estate regulations such as the surprise 12.16 measures announced by the government last year, the upward trend in Seoul housing prices is expected to slow down in the first half of the year. In the first half, the private land price ceiling system will begin to be fully applied, and multi-homeowners are likely to dispose of surplus houses to avoid the rapidly increasing burden of property taxes, which may cause the market to show weakness. However, experts predict that since the effect of the measures is expected to be short-lived and concerns about supply shortages remain unresolved, the market is likely to resume an upward trend in the second half. Therefore, the market expects the second quarter to be a turning point for housing prices.

◆First half 'Low'... Effect of the 12.16 measures= The biggest expected change in the Year of the Rat is in the Seoul metropolitan housing market. Especially in the first half, major issues such as the price ceiling system and the postponement of capital gains tax surcharges for multi-homeowners coincide with the general election, which experts say will maximize market uncertainty and volatility. Moreover, the market is unlikely to escape the influence of the 12.16 measures, which cover taxes, loans, and subscription regulations, at least during the first half. Housing loans are completely blocked for houses priced over 1.5 billion KRW, and the burden of property taxes on high-priced houses has significantly increased due to the rise in comprehensive real estate tax rates and official property prices. The reduction of benefits for registered rental businesses and investigations into the source of funds are also factors that will dampen housing purchase sentiment for the time being.

Kim Deok-rye, Head of Housing Policy at the Korea Housing Industry Research Institute, said, "The government's strong measures represented by the 12.16 measures will have an impact at least until the first half of next year," adding, "Whether the measures will be revised during the legislative process in the National Assembly is also a variable for the market."

◆Second half 'High'... Still solid demand= Experts expect the effect of the measures to be short-lived. They say there is a high possibility that housing prices will rise again in the second half. Despite government regulations, housing demand in Seoul remains steady, and concerns about supply contraction mean that housing prices have the potential to rise again at any time.

Kim Eun-jin, Team Leader at Real Estate 114 Research Center, said, "Although demand suppression policies have been strengthened, the outlook for supply contraction due to the implementation of the price ceiling system is gaining traction, highlighting a preference for new apartments within five years of completion," adding, "Low interest rates and land compensation in the metropolitan area will act as factors driving prices up in the second half." Ham Young-jin, Head of Big Data Lab at Zigbang, said, "I think housing prices have already risen to shoulder level," but added, "Unless a suitable alternative investment destination for abundant liquidity appears, the decline in housing prices will be limited." Earlier, the Korea Housing Industry Research Institute also forecasted a 1.2% increase in Seoul apartment prices next year for these reasons.

◆Subscription market 'Overheated', move-in market 'Stable'= The overheated subscription market is expected to continue this year. In particular, large complexes in prime Gangnam areas such as Dunchon Jugong in Gangdong-gu and Gaepo Jugong 1 Complex in Gangnam-gu are rushing to sell before April to avoid the price ceiling system, attracting buyers' attention to the subscription market.

The volume of new apartment move-ins is analyzed to remain similar to previous years. According to Real Estate 114, the total number of apartment move-ins nationwide this year is about 346,000 households, which is 53,000 fewer than last year. However, the number of move-ins in Seoul is about 42,012 households, similar to last year's 43,016 households. The problem lies in next year. Nationwide move-ins are expected to drop sharply by more than 40% to about 234,000 households, a 41% decrease compared to this year. Seoul is also expected to fall to about 22,000 households, half of this year's level. Team Leader Kim Eun-jin pointed out, "Many complexes will rush to sell early next year to avoid the price ceiling system, but after the application of the system, the number of new sales or construction starts in prime Seoul areas is likely to decrease for a while."

◆Jeonse market instability is another variable= Tenants are likely to face a tough year. After the 12.16 measures last year, housing purchase demand shifted toward jeonse (long-term lease), and the recent revision of the college entrance system has caused jeonse prices to surge in popular school districts. Moreover, for high-priced houses over 900 million KRW, leveraging through loans to buy a home is also difficult due to loan regulations. In fact, in areas with high school district demand such as Daechi-dong in Gangnam-gu, Mok-dong in Yangcheon-gu, and Junggye-dong in Nowon-gu, jeonse prices have surged by 100 to 200 million KRW in the past month. Park Won-gap, Senior Real Estate Specialist at KB Kookmin Bank WM Star Advisory Group, said, "Looking at this year alone, while the supply of move-in units in Seoul is not insufficient, there is a high possibility of localized jeonse difficulties."