[Initial Insight] The 25th Real Estate Measure, Even the Market Is Exhausted

Real estate stock photo / Photo by Mun Honam munonam@

[Asia Economy Reporter Jo Gang-wook] It has already been two weeks since the government announced the ‘2·4 Real Estate Measures,’ which promised a ‘housing supply bomb.’ Earlier, President Moon Jae-in raised market expectations by using expressions like ‘extraordinary’ and ‘innovative’ during the New Year’s meeting, and government ministries further fueled anticipation by calling it an ‘unprecedented’ scale on the day of the announcement.

Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki self-assessed that the upward trend in housing prices has slowed since the announcement of the measures. He went a step further by referring to the global financial crisis period and warned that "housing prices could fall." Minister of Land, Infrastructure and Transport Byun Chang-heum also appeared on radio and TV broadcasts consecutively, expressing confidence in the success of the 25th measure by saying, "Since it is profitable, there is no reason for landowners or associations not to proceed with the project."

However, the market’s reaction is different. Even after the announcement of the 2·4 measures, apartment buying sentiment has actually strengthened. In fact, the apartment sales supply-demand index in the Seoul metropolitan area (as of February 8) recorded the highest level since the Korea Real Estate Board began this survey in July 2012. The metropolitan area hit the highest level since the survey began, and Seoul recorded its highest in over seven months since July 13, just before the August 4 supply measures were announced last year.

Apartment prices in the metropolitan area continue their soaring trend. According to last week’s Real Estate Board survey, apartment prices in the metropolitan area rose by 0.33%, marking the same rate of increase for three consecutive weeks. This is the highest rate of increase in 8 years and 8 months since the related statistics were first compiled. In particular, Seoul saw a 0.09% increase, which was even higher than the early-year increase before the measures were announced (0.06?0.07%).

On the ground, the dominant outlook is that housing prices will continue to rise nationwide, including Seoul. In Seoul’s case, the supply of new housing this year and next is lower than usual, and the 2·4 measures, which promise to supply 323,000 units, are not seen as a solution to meet immediate demand. In fact, an apartment in Apgujeong-dong, Gangnam-gu, Seoul, sold last month for a staggering 5.5 billion KRW (exclusive area 196.84㎡), breaking the previous highest price of 4.93 billion KRW for the same area set in August last year by 570 million KRW.

Due to the uncertainty caused by the empty promises lacking specific supply timing and sites, a ‘transaction cliff’ phenomenon is widespread in the market, where homeowners withdraw their listings, freezing housing transactions. In addition, there are considerable side effects such as price increases in newly built apartments due to the ‘balloon effect’ and controversies over property rights infringement. Villa transactions within project candidate sites have sharply declined due to concerns over cash settlements, and expectations for private brand apartment supply have diminished, causing asking prices for new apartments to surge. Cracks are also appearing in the development processes of major public housing sites previously promoted by the government. Due to these issues, concerns are growing that real demand buyers’ ‘real estate phobia’ is spreading.

The phrase ‘Though the beginning was small, the end will be glorious’ is often quoted by entrepreneurs or examinees wishing for good luck and success in their challenges. Although it is a verse from the Bible’s Book of Job, it is also a common slogan at store openings. Its perfect antonym is ‘Yongdu-sami (龍頭蛇尾),’ meaning ‘a dragon’s head and a snake’s tail’ (a strong start but weak finish). The market is responding coldly to expressions like ‘the largest ever’ and ‘unprecedented.’ More than the volume of 830,000 units, the biggest concern is where, how, and what kind of housing will be supplied.

This is already the 25th measure. The market is now exhausted. Showing tangible progress in the 2·4 measures will be the first step to enhancing policy credibility. This time, we sincerely hope both the beginning and the end will be glorious.