Experts say "It will act at a level that defends against reduced purchasing power and rapid market contraction"
[Asia Economy Reporter Yuri Kim] Despite the Bank of Korea's base interest rate cut, experts predict that the impact on the real estate market will be limited. While the sub-1% interest rate environment may help cushion downward pressure on housing prices, the consensus is that the real estate market cannot avoid being affected amid the severe economic damage caused by the COVID-19 pandemic.
Professor Kwon Dae-jung of Myongji University Graduate School of Real Estate stated on the 17th, "Due to government regulations such as loan restrictions from the December 16 measures last year and the aftermath of COVID-19, the housing market is depressed, so even if interest rates are cut, the impact will be limited." He explained that it would be difficult to reverse the recent trend of shrinking buyer sentiment. Ham Young-jin, head of Zigbang Big Data Lab, also commented on the effect of the rate cut, saying, "Rather than a leverage effect from reduced interest burden, it will serve to defend against decreased purchasing power and rapid market contraction caused by the economic downturn," adding, "In the long term, buyer hesitation and psychological contraction in the real estate market seem inevitable." Professor Kim Sang-bong of Hansung University’s Department of Economics also said, "The impact of the rate cut will be limited," advising that "instead, organic policy coordination by the government is necessary for a soft landing of the real estate market."
Experts pointed out that the COVID-19 situation is a more significant variable than the interest rate cut. If the situation prolongs, consumption contraction and economic recession will inevitably affect the real estate market. Professor Shim Kyo-eon of Konkuk University’s Department of Real Estate predicted, "If the COVID-19 situation prolongs, areas that have seen rapid price increases, such as reconstruction zones in Gangnam, Seoul, could experience significant corrections." This implies that the recent price decline trend in Gangnam could steepen. Professor Kwon also analyzed, "If assets held by self-employed individuals or companies flood the market, real estate prices could enter a full-fledged downward trend."
However, if the situation ends early, there is also speculation that the unprecedented ultra-low interest rate environment could act as a catalyst for housing price rebounds. Jang Jae-hyun, head of Real Today, said, "The COVID-19 situation will not immediately trigger a housing market slump," and forecasted, "There is a possibility that liquidity at sub-1% interest rates could flood into promising apartment markets all at once."
There was also an expectation that polarization in the new housing supply market will intensify further. Lab head Ham said, "As subscription demand concentrates in popular areas, market concentration will become more pronounced," adding, "On the other hand, there are concerns about an increase in unsold units in unpopular peripheral areas."
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