Interest Rate Hikes and Deregulation... Beyond Housing Price Polarization to Fragmentation

On the 22nd, a view of apartment buildings in downtown Seoul from 63 Square in Yeouido, Seoul

As macro variables such as interest rate hikes mix with micro variables by region in the real estate market, the polarization of housing prices is intensifying beyond simple division into a fragmentation pattern. While previously the polarization was mainly between the metropolitan area and provinces, recently, polarization is spreading within Seoul as well as within the metropolitan area itself.

According to the weekly apartment price trend survey for the 4th week of May released by the Korea Real Estate Board on the 27th, the nationwide apartment sale price change rate was -0.01%, marking a decline for three consecutive weeks.

The metropolitan area showed a decline for the third consecutive week at -0.02%, while the provinces remained flat at 0.00% following the previous week. It is analyzed that with the new government inauguration and election phase, intermittent regional favorable factors cause the local real estate markets to fluctuate sharply in the short term, resulting in fragmentation phenomena.

Apartment Sale Price Index Change Rate by Province

This phenomenon is particularly strong in the metropolitan area. Gyeonggi Province (-0.03%) and Incheon (-0.05%) continued to show overall weakness in apartment prices this week. Gwacheon City, where the supply of new housing increased, saw apartment prices fall by 0.09% compared to last week, and Siheung City and Hwaseong City dropped by 0.18% and 0.15%, respectively, widening the decline from last week (-0.14%, -0.08%). On the other hand, first-generation new town areas such as Bundang-gu in Seongnam (0.03%) and Goyang City (0.06%) maintained strength, buoyed by expectations of reconstruction and deregulation.

The situation in Seoul is not much different. Yongsan-gu rose 0.05% for two consecutive weeks, recording the highest increase in Seoul. This reflects the ongoing effects of the presidential office relocation. Seocho-gu rose 0.04% compared to last week as record-high transactions occurred in ultra-high-priced apartments over 3 billion KRW. Seocho-gu, which is not a land transaction permission zone, has seen apartment prices rise 0.51% on a weekly basis this year, the highest cumulative increase in Seoul. Gangnam-gu rose 0.02% this week, showing strength centered on high-priced homes and reconstruction complexes unaffected by loan regulations, ranking third in Seoul after Yongsan and Seocho-gu in terms of price increase.

Conversely, four districts including Songpa-gu, Gwangjin-gu, Guro-gu, and Jungnang-gu shifted from flat last week to decline this week, continuing weakness. Although the decline narrowed, areas such as Nowon (-0.04% → -0.02%), Seodaemun (-0.03% → -0.01%), and Mapo-gu (-0.02% → -0.01%) also continued to weaken. The Korea Real Estate Board analyzed, "While high-priced areas with favorable location conditions and development prospects continued to rise, overall, Seoul’s apartment market showed weakness this week due to concerns over further interest rate hikes, stabilization of jeonse prices, and weakened buying sentiment."

There are also forecasts that polarization and fragmentation phenomena could worsen depending on the speed and magnitude of interest rate hikes. Ko Joon-seok, CEO of J.Edu Investment Advisory, said, "Areas where record-high prices emerged despite loan regulations are still maintaining that trend. On the other hand, markets that real demand buyers could somewhat target are inevitably shrinking due to the direct impact of interest rate hikes."