[2020 Real Estate] Panic Buying and Jeonse Crisis... A Market Never Experienced Before

The Real Estate Market This Year Through Key Keywords
Jeonse Refugees, Subscription Frenzy, Half-Price Lotto, etc.

Apartments in Songpa-gu are observed from the Lotte World Tower Observatory in Songpa-gu, Seoul. Photo by Jinhyung Kang aymsdream@

Real estate was one of the hottest issues in South Korea in 2020, alongside the novel coronavirus disease (COVID-19). The industry's reflection this year was that it was a 'real estate market never experienced before.'

The real estate market continued its upward trend despite government regulations. It would be more accurate to say that the government's regulations actually drove up housing prices. To curb rising home prices, the government relentlessly introduced large and small measures seven times this year, but these only stimulated the market's 'panic buying.' The reckless implementation of the two lease laws triggered an unprecedented 'jeonse crisis.' Real estate policy even ranked first in negative evaluations of the Moon Jae-in administration's governance.

Here is a summary of the 2020 real estate market using key keywords.

This year's subscription market was literally a frenzy. The surge in housing prices, relatively low prices, expectations of capital gains, and concerns about supply reduction all played a role. According to Real Estate 114, as of the 24th of this year, the average subscription competition rate for apartments in Seoul was 76.97 to 1, the highest since records began in 2002. The nationwide average competition rate during the same period also jumped significantly to 27.38 to 1, compared to 15.34 to 1 last year.

Perfect score (84 points) subscription accounts also appeared frequently. Perfect scores were seen in places like Heukseok Riverpark Xi in Dongjak-gu, Shinmokdong Paragon in Yangcheon-gu, Maegyo Station Prugio SK View in Suwon-si, Gyeonggi Province, and Gwacheon Prugio Eoullim Lavieno in Gwacheon-si. This year, the cutoff score for the point system in Seoul apartments reached 61 points, surpassing the maximum score (57 points) a 30-year-old head of a four-person household could receive.

Jeonse prices, which had been relatively stable, surged sharply around the end of July. Despite industry concerns, the government's and ruling party's unilateral implementation of the two lease laws, including the right to request contract renewal and the rent ceiling system, triggered the start of the jeonse crisis. Tenants who could not afford the skyrocketing jeonse prices of Seoul apartments, which increased by tens of millions of won overnight, were pushed out to the metropolitan area, becoming 'jeonse refugees.' The shortage of jeonse led to a vicious cycle of rising monthly rents and increased demand for purchasing homes, which in turn drove up sales prices. Jeonse prices, which have risen for 76 consecutive weeks, are still ongoing.

Applicants are waiting to enter in front of the model house of Sewoon Prugio Hericity in Gangnam-gu, Seoul.

One of the major institutional changes in the housing market this year was the implementation of the private land price ceiling system on July 29. This system calculates the sale price by adding a reasonable profit margin for construction companies to the land and construction costs and requires that apartments be sold at or below this price. By artificially controlling market prices, apartments supplied in Seoul and the metropolitan area were often offered at prices as low as half the market value. Due to disqualified winners during the subscription process, the so-called 'no-rank subscription' attracted as many as 300,000 people for a single unit, creating a 'jupjup' craze.

The government's price control also caused side effects, such as halting major housing projects. The price control was the direct cause of the stalling of the Dunchon Jugong apartment project in Gangdong-gu, Seoul, which was the biggest focus of the sales market this year. Dunchon Jugong is a mammoth reconstruction project with 12,032 units to be built, including 4,785 units for general sale. However, the Housing and Urban Guarantee Corporation (HUG), the sales guarantee agency, proposed a sale price of around 29 million won per 3.3㎡, far below the surrounding market prices. As a result, the association members have indefinitely postponed sales and are even considering post-sale. The price control, justified as a measure to curb housing prices, only caused a contraction in supply.

<100 Million Won per 3.3㎡>

Paradoxically, government regulations produced ultra-high-priced apartments. In this process, apartments priced at 100 million won per 3.3㎡ appeared. Twenty years ago, this price could buy a medium-sized apartment in downtown Seoul. Acro Riverpark in Banpo-dong, Seocho-gu, and Raemian Palace in Daechi-dong, Gangnam-gu, made the list of apartments priced at 100 million won per 3.3㎡. Recently, Acro Riverview Sinbanpo in Jamwon-dong, Seocho-gu, also joined the 100 million won club. The soaring prices of Gangnam apartments have consequently driven up prices in non-Gangnam areas, and recently, 1 billion won has become the basic market price for most medium-sized apartments in Seoul.

[Image source=Yonhap News]

The government declared a war on speculation and introduced various measures, but the result was always the 'balloon effect.' When overheating areas were suppressed, speculative demand inevitably moved to nearby areas. When regulations were tightened in Seoul last year, housing prices in the Suwon-Yongin-Seongnam area surged. This year, the government designated most of Gyeonggi Province, excluding border areas, as regulated areas through the June 17 measures. Consequently, housing prices in Gimpo surged. The government designated Gimpo as a regulated area starting November 19. Funds with nowhere to go flowed to nearby Paju, as well as to Busan, Changwon, and Cheonan in the provinces. The government designated most of these areas as regulated regions on the 17th. Especially as many areas nationwide were designated as regulated, recently, demand has even U-turned back to Gangnam, showing a 'reverse balloon effect.'