Despite Housing Price Decline, Resilient 'Newly Built Large Complexes'... Will They Follow the Plummeting Reconstruction Market?

Reconstruction Prices Drop by Hundreds of Millions, but New Buildings Rise or Hold
Strong Real Demand Supports Price Defense... Still Resilient
However, Prolonged Economic Downturn Makes Price Decline Inevitable
'Gangnam Reconstruction → Seoul Outskirts → Capital Region' Sequence

[Asia Economy Reporter Moon Jiwon] Although Seoul apartment prices have entered a downward trend due to the economic recession caused by the novel coronavirus infection (COVID-19), large complexes or newly built apartments in good locations have maintained or slightly increased their existing prices. It is analyzed that because of solid actual demand, the price downside rigidity is stronger compared to reconstruction promotion complexes with a high proportion of investment demand.

According to the Ministry of Land, Infrastructure and Transport's real transaction price disclosure system on the 6th, two transactions of 84.9㎡ (exclusive area) apartments in Helio City, Songpa-gu, Seoul, completed in December 2018, were made at 1.705 billion KRW and 1.756 billion KRW at the end of February. Compared to the transaction price in the 1.5 billion KRW range in July last year, the price rose by about 200 million KRW in seven months. Currently, the high floors of the royal building in this apartment maintain asking prices above 1.7 billion KRW.

On February 21, an 84.943㎡ apartment in Raemian Blestige, Gaepo-dong, Gangnam-gu, was traded at 2.43 billion KRW. Although this is a slight decrease compared to the same size apartments traded at 2.45 billion to 2.49 billion KRW in December last year, the decline is minimal compared to Gaepo Jugong 1 Complex across the street, which dropped more than 600 million KRW in one month.

A representative of real estate agency A in Gaepo-dong said, "In Gangnam, except for reconstruction complexes, there are hardly any urgent sale listings yet," adding, "Especially popular complexes like DH Honor Hills and Raemian Blestige, which are newly built, have hardly been affected." The official also said, "However, in the past, Gangnam homeowners often raised prices by 100 to 200 million KRW just before signing sales contracts, but recently, perhaps due to the downward trend in house prices, this tendency has disappeared."

Lotte Castle First in Amsa-dong, Gangdong-gu, with 3,226 households, also maintains high prices for small and medium-sized units compared to last year. An 84.81㎡ unit in this complex was traded at 1.178 billion KRW on the 12th of last month, about 18 million KRW higher than on January 11. The smaller 59.99㎡ unit was sold for 970 million KRW on the 7th of last month, showing a slight price increase compared to the beginning of the year.

Apartments in good locations such as prestigious school districts have not yet shown a clear price decline. A 49.86㎡ unit in Daechi 2 Complex, Gaepo-dong, where admission to prestigious elementary, middle, and high schools is possible, was traded at 1.235 billion KRW and 1.24 billion KRW in early last month, maintaining prices from November to December last year. The situation is similar in the northern area. In Jugong 5 Complex, Junggye-dong, Nowon-gu, which is close to a large academy district, there was no sharp price drop in most unit sizes.

However, concerns are emerging that the economic recession caused by COVID-19, which is likely to be prolonged, will eventually extend the house price decline that started in Gangnam reconstruction complexes to newly built and mid-to-low priced complexes.

Typically, when a real estate downturn occurs, prices fall first and most in reconstruction complexes that rose the most during the price increase phase. Because the jeonse (long-term lease) rate is low compared to other apartments with similar prices, the risk is high, so speculative forces realize profits first through these properties.

An Myung-sook, head of the Real Estate Investment Support Center at Woori Bank, said, "If prices in Gangnam reconstruction complexes fall first, prices of newly built apartments and those in Mapo, Yongsan, and Seongdong districts will sequentially decline," adding, "Then, the downward trend may spread in order to the outskirts of Seoul and metropolitan areas, and provinces where apartments priced below 900 million KRW are concentrated."

In fact, Mapo Raemian Prugio in Ahyeon-dong, Mapo-gu, considered one of the leading complexes north of the Han River, has seen some asking prices for 89.59㎡ units, which traded at 1.65 billion KRW in January, drop to the 1.5 billion KRW range. Director An said, "Even looking positively, the impact of COVID-19 will continue until the first half of this year, so urgent sale listings may increase," and advised, "Homebuyers should not rush and should observe the trend until the end of next month."