[Ordinary Person Report] Bought a 700 Million Won Apartment... Its Value Increased by the Loan Amount in 3 Years

Shinhan Bank '2020 Ordinary People's Financial Life Report'
Average House Price Increase of 180 Million KRW for Apartments Purchased at 500-700 Million KRW Over the Past 3 Years... 56% of Loan Amount
For Apartments Under 200 Million KRW, House Price Increase Rate Around 10% Compared to Loan Amount

[Asia Economy Reporter Kwon Haeyoung] Over the past three years, people who purchased apartments worth more than 700 million KRW have gained capital gains exceeding 80% of their loan principal due to rising housing prices. The phenomenon of "the rich get richer, the poor get poorer" was prominent, as those who could borrow more tended to buy more expensive homes and thus earned greater capital gains.

According to the "2020 Ordinary People's Financial Life Report" released by Shinhan Bank on the 27th, the average loan principal taken out at the time of purchasing apartments worth more than 700 million KRW over the past three years was 198.64 million KRW. The loan-to-value ratio was about 21% of the home price.

Since the time of purchase with a loan, the average increase in apartment prices was 166.29 million KRW, which is 84% of the loan amount. This means they earned capital gains close to the loan principal.

Expanding the range to apartments priced over 500 million KRW, those who purchased apartments in this price range over the past three years saw price increases exceeding half of the loan principal they took out at the time of purchase. For apartments priced between 500 million and 600 million KRW, the average loan amount was 183.07 million KRW, and the increase in apartment prices was 102.4 million KRW, which is 56% of the loan amount.

The higher the apartment purchase price, the greater the increase in value after purchase. Apartments over 700 million KRW increased by an average of 166.29 million KRW, apartments priced between 500 million and 600 million KRW rose by 102.4 million KRW, apartments in the 400 million KRW range increased by 72.96 million KRW, and those in the 300 million KRW range rose by 45.92 million KRW. These correspond to 56%, 42%, and 31% of the loan amounts, respectively.

A Shinhan Bank official explained, "Although loans were inevitable for purchasing apartments, the significant rise in real estate prices positively impacted asset accumulation."

On the other hand, the price increase rate for low-priced apartments during the same period was minimal. Apartments priced below 100 million KRW rose by 6.7 million KRW (9% of the loan amount), and those in the 200 million KRW range increased by 16.26 million KRW (13% of the loan amount). Although more than half of the purchase price was covered by loans, these increases fell short of the nationwide average apartment price increase of 14% over three years.

The loan-to-value ratio was lower for higher-priced homes. For homes priced over 700 million KRW, it was 21%; for 500 million to 600 million KRW, 33%; for 400 million KRW, 41%; whereas for 100 million to 200 million KRW, it reached 53%.

During the same period, for those who purchased apartments for residential purposes, the regional housing price increase rates were highest in Seoul at 21%. Gyeonggi and Incheon rose by 14%, the five major metropolitan cities by 12%, and other provinces by 7%.

These buyers responded that they would consider selling their apartments if the value of their recently purchased apartments increased by more than 20% within the next three years compared to the current value. The desired increases were 25% for Seoul, 26% for Gyeonggi and Incheon, 26% for the five major metropolitan cities, and 22% for other provinces. This indicates that they expect investment returns exceeding those of Seoul apartment buyers over the past three years.