The Number of Apartment Complexes with Falling Prices Increases... Diverging Housing Price Forecasts

[Asia Economy Reporter Kim Min-young] Although the proportion of apartment complexes with price declines in overall transactions is increasing, newly built apartments in major areas continue to set record-high prices, leading to mixed outlooks on housing prices. Some predict that a differentiated market trend will fully emerge as buying sentiment weakens due to strengthened taxes and loan regulations.

According to Kim Hoe-jae, a member of the Democratic Party of Korea, the proportion of apartment transactions in Seoul last month (based on reports from the 1st to the 26th) that fell below the previous transaction price reached 35.1%, up 14.3 percentage points from 20.8% in the previous month. This is the first time in five months that the share of price-declining apartments has increased.

Since the beginning of this year, transactions with prices lower than the previous ones rose for four consecutive months: 18.0% in January, 23.9% in February, 27.5% in March, and 33.3% in April. Then, they declined for four consecutive months: 27.6% in May, 23.9% in June, 22.1% in July, and 20.8% in August. In September, the rate rose again to the 30% range.

The housing sales supply-demand index, which gauges real estate buying sentiment, is on a downward trend. As of the second week of October (11th), Seoul’s apartment sales supply-demand index was 101.9, down 0.9 points from 102.8 in the first week of October. This marks five consecutive weeks of decline. The index dropped as follows: △September 6th 107.2 △13th 107.1 △20th 104.2 △27th 102.9 △October 4th 102.8. The baseline is 100, and the higher the number above 100, the stronger the buying sentiment.

In various parts of Seoul, the number of complexes lowering prices compared to previous transactions is also increasing. According to the Ministry of Land, Infrastructure and Transport’s actual transaction data, an apartment in Bangbae Acro River, Bangbae-dong, Seocho-gu, with a net area of 149.225㎡, was traded on the 10th of last month for 2.16 billion KRW (6th floor), which is 240 million KRW lower than the previous transaction in August (2.4 billion KRW). In Sangsu-dong, Mapo-gu, a unit in Raemian Bamseom Revenue I with a net area of 84.99㎡ was sold on the 15th of last month for 1.67 billion KRW (11th floor), 60 million KRW lower than the previous sale price of 1.73 billion KRW (13th floor, August).

While the proportion of complexes with price declines in overall transactions is increasing, newly built apartments in major areas continue to set record-high prices.

According to the Ministry of Land, Infrastructure and Transport’s actual transaction system, a 59.9㎡ unit (net area) in Mapo Raemian Prugio 4 Complex, Ahyeon-dong, Mapo-gu, Seoul, was confirmed to have been sold for 1.7 billion KRW at the end of last month. This is 150 million KRW higher than the 1.55 billion KRW transaction price recorded four months earlier in May, which had already exceeded the loan prohibition threshold of 1.5 billion KRW. Although there have been only four actual transactions of this housing type this year, its value continues to rise.

Record-high prices are being set continuously in major areas of Seoul. Most are newly built apartments in popular areas such as Gangnam, downtown, and Magok District. The actual transaction price of an 84.24㎡ unit in Godeok Gracium, Godeok-dong, Gangdong-gu, which was 1.365 billion KRW in May, surged to 1.89 billion KRW last month. This is 5 million KRW higher than the previous month’s record price. This housing type also had only five actual transactions this year.

Record-high transactions were also observed in Magok District, Gangseo-gu, which is bustling due to the MICE complex development. A unit in Magok M Valley 7 Complex with an area of 84.91㎡ was sold for 1.495 billion KRW (1st floor) in July, setting a record price, and two months later found a new owner for 1.755 billion KRW (11th floor).

Seoul’s housing prices are showing strength mainly in reconstruction and mid-to-low price complexes. According to the Korea Real Estate Board, the comprehensive housing sales price index (including apartments, detached houses, and row houses) in Seoul rose by 0.72% last month, an increase from 0.69% in the previous month. This marks five consecutive months of expanding growth.