Since Seol, the Real Estate Market Faces a 'Transaction Cliff' Instead of Price Stabilization (Comprehensive)

Announcement of 20 New Residential Sites in the Seoul Metropolitan Area Next Month
Reflecting Expectations from the 2·4 Measures
Slowing Rise in Apartment Sale Prices
Disappearance of Reconstruction and Redevelopment Transactions
New Apartment Owners Withdrawing Listings

[Asia Economy Reporter Kangwook Cho] Real estate market stability or transaction cliff.

As the government announced that it will reveal 20 new housing sites with a scale of about 260,000 households starting next month as a follow-up measure to the 2·4 supply plan, market attention is focused on the housing price trend after the Lunar New Year holiday.

While the rise in Seoul apartment prices has slowed after the announcement of the measures, the government confidently states that housing prices will stabilize once the follow-up measures are announced. However, in the market, voices are rising expressing concerns about a transaction cliff phenomenon, such as a decrease in listings, suggesting that the recent moderation in the rise is only temporary.

According to the Ministry of Land, Infrastructure and Transport and the real estate industry on the 15th, Minister Byeon Chang-heum recently appeared on TV and radio broadcasts around the Lunar New Year and said, "The 20 new housing sites in the metropolitan area, where about 260,000 households may be supplied, are almost finalized," adding, "There was housing price instability due to panic buying caused by the belief that housing supply would be difficult, but we have shown that sufficient supply is possible."

Minister Byeon further expressed strong confidence in ‘curbing housing prices,’ saying, "Housing prices may even fall below the current level beyond stabilization." The Ministry of Land plans to disclose about 20 newly selected housing sites sequentially after completing consultations with local governments. Announcements will be made two to three times from as early as next month through the first half of this year.

Disappearing Housing Listings... No Transactions, No Price Changes

The nationwide apartment sale price increase has also temporarily slowed since the government’s policy announcement. According to the Korea Real Estate Board, as of the second week of February (as of the 8th), the nationwide apartment sale price increase rate was 0.27%, down 0.01 percentage points from the previous week. In particular, the increase rate has decreased by 0.01 percentage points for two consecutive weeks this month. Seoul apartment prices also saw a reduction in the increase rate from 0.10% last week to 0.09% this week. On the surface, this seems to reflect market stabilization expectations due to the 2·4 measures.

However, experts point out that this slowdown in the rise is merely a transaction cliff phenomenon caused by the disappearance of listings. After the supply measures, transactions of reconstruction and redevelopment properties have disappeared due to fears of cash settlements at appraisal prices less than half of market prices. The apartment market is also showing signs of a balloon effect, where owners are withdrawing listings as new apartments benefit from spillover effects, according to industry explanations.

Ko Jong-wan, head of the Korea Asset Management Research Institute, said, "The impact of the 2.4 supply plan is unexpectedly not yet showing ripple effects," adding, "The follow-up measures could be a variable, but if there is no change as it is, it will be difficult for housing prices to fall."

According to the Seoul Real Estate Information Plaza, the number of apartment sales transactions in Seoul (as of the 15th) has sharply declined from 7,511 in December last year to 4,181 in January this year and 234 in February. During the same period, single-family and multi-family houses decreased from 927 to 488 and 19, respectively, and multi-unit and row houses shrank from 5,426 to 4,347 and 587. Listings are also decreasing. According to ‘Apartment Real Transaction Price’ (Asil), a real estate information company, the number of apartment listings in Seoul was 38,667 as of the 14th, down 4.4% from 40,440 ten days earlier. Listings decreased in all 25 districts of Seoul.

Kwon Dae-jung, professor of real estate at Myongji University, said, "The government’s anti-speculation measures have suppressed demand, reducing transaction volume, while waiting demand has increased, raising concerns about simultaneous rises in jeonse (long-term deposit lease) and sale prices in the future," adding, "However, because government regulations are strong, the number of sales transactions will not increase significantly, but the volume traded is likely to set new record prices."

There is also a forecast that apartment prices in the metropolitan area will rise by up to 8% this year.

Ham Young-jin, head of the Zigbang Big Data Lab, explained, "Concerns about supply may decrease, but price increases will continue, with Seoul rising about 3-5% and the metropolitan area 5-8%," adding, "In particular, Gyeonggi-do is showing trends of both high transaction volume and rising prices."