Another Failed Bubble Warning... Seoul Housing Price Increase Rate Hits Highest in 1 Year and 7 Months

Seoul Apartment Sale Price Increase Rate 0.2% in First Week of August
"House Prices Overvalued... Avoid Chase Buying" Government Warning Ignored
Supply Shortage Due to Multi-Homeowner Restrictions, Soaring Jeonse Prices Stimulate Overborrowing

[Asia Economy Reporter Onyu Lim] The government's real estate statement warning of a 'housing price peak' was insufficient to curb the soaring housing prices in Seoul. As the crackdown on multi-homeowners led to a sharp decline in new housing supply, Seoul apartment listings have dried up, and anxious prospective buyers are purchasing homes at record prices. With jeonse prices also soaring, some analysts suggest that the 'Yeongkkeul' (borrowing to the limit) chase buying is a choice made without alternatives.

◇More Buyers than Sellers for Seoul Apartments= According to the Korea Real Estate Board on the 6th, the apartment sales supply-demand index in Seoul for the first week of August was 107.9, up 0.3 points from last week's 107.6. This is the highest level in five months since the first week of March (108.5). The sales supply-demand index is calculated by analyzing surveys from member real estate agencies and the number of online listings, quantifying the balance between demand and supply. The closer to '0', the more supply exceeds demand; the closer to '200', the more demand exceeds supply. A value above the baseline of 100 indicates stronger buying sentiment.

This sentiment was immediately reflected in housing prices. The Seoul apartment sales price increase rate for the first week of August was 0.20%, the largest increase in one year and seven months since the third week of December 2019 (0.20%). Even during the panic buying by young people in June and July last year, prices did not rise this much. Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki appealed to the public at the end of last month through a national address, stating that housing prices were approaching their highest levels and urged caution against chase buying, but prices have only continued to rise.

◇Crackdown on Multi-Homeowners Backfires... Seoul Listings Fall Below 40,000= The biggest reason behind the relentless rise is the 'listing drought.' According to real estate big data company Apartment Real Transaction Price, Seoul apartment listings in August are around 39,000 units. This is a drop of 6,000 units from 45,000 two months ago. It is the first time in six months since February that Seoul apartment listings have fallen below 40,000.

In the market, there are claims that the government's crackdown on multi-homeowners caused the listing drought. The government's policy to induce listings from multi-homeowners by raising capital gains tax rates and comprehensive real estate tax rates has instead encouraged holding and gifting, leading to a depletion of listings. Additionally, the supply-demand imbalance has worsened as the supply of new apartments in Seoul sharply declined due to reconstruction and redevelopment policies focused solely on regulation.

Ultimately, with many buyers but few sellers, apartment prices continue to surge daily despite the transaction cliff. A representative from A Real Estate Agency in Mia-dong, Gangbuk-gu explained, "Buyers waiting while negotiating prices with homeowners become anxious as listings quickly disappear, eventually leading to contracts at high prices."

◇Unstoppable Rise in Jeonse Prices... Buying Becomes an Inevitable Choice= Especially, soaring jeonse prices are further stimulating the 'Yeongkkeul' buying enthusiasm among those considering purchase. The Seoul apartment jeonse price increase rate for the first week of August was 0.17%, the largest rise in one year since August last year. This is due to the lingering effects of the new lease protection law, combined with reconstruction relocation demand and the school district demand during the vacation moving season. Many tenants, burdened by the jeonse interest bomb, seem to prefer buying a home even if it means stretching themselves financially.

Experts predict that with the decreasing available listings and rising jeonse prices continuing, Seoul housing prices are bound to rise in the second half of the year. Ham Young-jin, head of the Zigbang Big Data Lab, said, "With steady jeonse price increases and fewer new apartment supplies in Seoul compared to last year, the phenomenon of jeonse prices pushing up sales prices will continue." Jang Jae-hyun, head of research at Realtoday, also said, "Recently, easing of loan regulations for actual buyers has increased demand, but listings remain insufficient. Even if there is a correction in Seoul housing prices, the situation of eventual price increases repeats, so buyers have no choice but to purchase."