Falling? ... Korea Appraisal Board's Housing Price Forecast Contrasts with Private Research Institutes

Korea Real Estate Board Predicts 0.8% Decline in Seoul Housing Prices This Year
Attributes Stability to Strengthened Property Taxes and Increased Supply
Criticism Over Underestimation Due to Cooling of Redevelopment Projects Under Price Ceiling System

(Photo by Yonhap News)

[Asia Economy Reporter Moon Jiwon] The housing price forecast by the Korea Appraisal Board, a public institution under the Ministry of Land, Infrastructure and Transport, has once again become a subject of controversy this year.

According to the Korea Appraisal Board's '2020 Real Estate Market Outlook' report released on the 22nd, housing prices in Seoul are predicted to fall by 0.8% this year. The report particularly forecasted that the six-year rise in housing prices in the Seoul metropolitan area since 2014 will turn into a downward trend.

The background for the Appraisal Board's prediction is the 'strengthening of property tax' and 'expansion of supply.' Following the government's announcement of the December 16, 2019 real estate measures, along with restrictions on jeonse loans to block gap investments and the possibility of additional measures, it is explained that a selling trend among multi-homeowners will spread.

However, the market has raised criticism that the Appraisal Board, which issued incorrect housing price forecasts for two consecutive years in 2018 and last year, may have once again produced a report that too closely aligns with government policies.

According to the Appraisal Board's analysis report, the average property tax burden for someone owning one house valued at 1.76 billion KRW or less is 2.31 million KRW, an increase of about 70,000 KRW from the previous year. For a single house valued in the mid-3 billion KRW range, the property tax averages 23.5 million KRW, an increase of 1.5 million KRW.

The Appraisal Board also analyzed that in 2020, when the fair market value ratio reaches 100%, the property tax burden will increase further. It suggests that the pressure to sell houses will grow as owners struggle to bear the rapidly rising property taxes.

The Appraisal Board expects that the supply of new apartments this year will be similar to last year, leading to a decline in real estate prices and entering a stabilization phase. In Seoul, the total number of housing units to be occupied this year is expected to reach 41,000, including 12,000 units supplied in the southeastern area including Gangnam-gu.

Additionally, the Appraisal Board cited the third phase of new towns in the metropolitan area, scheduled for first supply at the end of next year, as a factor contributing to the decline in housing prices this year. The Board explained, "The early supply of the 3rd phase new towns will act as a positive signal to the market, stabilizing Seoul and adjacent metropolitan areas."

In response, the market views that the Appraisal Board may have deliberately downplayed factors causing housing price instability. An industry insider pointed out, "With the application of the private land price ceiling system, the market is immediately concerned about supply contraction, but such variables seem to have been barely considered in the forecast."

This contradicts forecasts from private research institutes that predict housing prices could rise again in the second half of the year due to supply shortages if many redevelopment projects are suppressed by the price ceiling system.

In fact, the Korea Appraisal Board has suffered a credibility hit due to housing price forecasts that were significantly off from reality over the past two years. In 2018, the year following the inauguration of the Moon Jae-in government, the Board predicted that housing prices in the metropolitan area would rise by only 0.8%, but prices actually increased by 3.3% according to the Board's own statistics. Last year's forecast predicted a 0.5% decline, but prices rose by 0.45%.

An industry official said, "With private research institutes and the Appraisal Board issuing completely opposite housing price forecasts, it only fuels market confusion," adding, "To improve the reliability of forecasts, it is worth considering establishing a cooperative system between the public and private sectors."