KRIHS, "Apartment Prices in Gangnam 4 Districts and Sejong Are Overvalued"

Apartment complexes and reconstruction construction sites nearby as seen from Lotte World Tower in Songpa-gu, Seoul. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Lee Chun-hee] A study has revealed that there is a bubble in apartment prices in Seoul, including the Gangnam 4 districts (Gangnam, Seocho, Songpa, Gangdong), and Sejong.

Researcher Choi Jin from the Korea Research Institute for Human Settlements stated on the 24th, through a report titled "Verification of Apartment Price Bubbles and Implications (January 2012 - January 2020)," that an analysis of apartment prices in metropolitan cities and the Gangnam 4 districts indicated the possibility of price bubbles in apartments in Seoul, including the Gangnam 4 districts.

Researcher Choi explained, "The domestic real estate market has seen price increases centered on apartments, raising concerns about speculative demand beyond actual residential demand and the potential formation of price bubbles." Using actual transaction price indices and median price data from the Korea Appraisal Board from January 2012 to last January, the intrinsic housing values by city and province were estimated, and the level of sales prices relative to intrinsic values was assessed. The intrinsic value of housing was calculated by applying the rent-to-price conversion rate to housing prices to determine rental prices, then applying a social discount rate of 4.5%.

Based on these findings, Researcher Choi analyzed that "Seoul, the Gangnam 4 districts, and Sejong City have sales prices that are overvalued compared to other regions." While other regions maintained a certain ratio level since 2016, these areas showed a continuous increase in the ratio. Furthermore, applying models such as the log-periodic pattern model to analyze whether price bubbles exist in these areas revealed that price bubbles are present in Seoul, including the Gangnam 4 districts.

Researcher Choi emphasized, "Attention must be paid to the possibility of localized price bubbles," and suggested, "In a situation where the gap between the real economy and asset markets is widening after the COVID-19 pandemic, price bubbles can have significant negative impacts on the economy. Therefore, the government needs to consistently implement policies to stabilize the real estate market."