Seoul Apartment Buying Sentiment Declines for 13 Consecutive Weeks
Increase in 1-2 Person Households and Interest Rate Hikes... Rising Preference for Small Apartments
View of apartment complexes in Seoul city from Seoul Sky, the observation deck of Lotte World Tower in Seoul. Photo by Asia Economy DB.
[Asia Economy Reporter Heo Midam] Amid the deepening 'transaction cliff' in the real estate market, demand is concentrating on relatively affordable small apartments. Small apartments have been relatively overlooked due to the so-called preference for a 'smart single property.' However, with successive interest rate hikes and loan regulations making it difficult for buyers to prepare large sums of money, they are turning their attention to small apartments with relatively lower price burdens. Additionally, the increase in 1-2 person households has also influenced the rise in small apartment purchases.
Recently, due to factors such as the economic downturn, real estate buying sentiment has sharply frozen. According to the Korea Real Estate Board, as of the 1st of this month, the Seoul apartment sales supply-demand index was recorded at 84.6. This is the lowest figure in over three years since July 15, 2019 (86.9). The sales supply-demand index is a score that analyzes the balance of demand and supply based on surveys of member real estate agencies and the number of online listings. The lower this index is below the baseline of 100, the more sellers there are compared to buyers.
Although the 'transaction cliff' phenomenon continues, small apartment transactions are rather gaining momentum. According to data compiled last month by real estate research firm Realtoday from the Korea Real Estate Board's subscription home data, the first-priority subscription competition rate for small apartments (exclusive area under 60㎡) in the first half of this year was 27.29 to 1, which is 2.85 times higher than the 9.55 to 1 recorded in the first half of last year.
Related posts are also appearing on real estate communities. One netizen said, "House prices are gradually falling, but they are still burdensome," adding, "Especially for large-sized apartments, the price range is so high that I can't even consider it. Since I live alone anyway, I don't need such a large space. I have no choice but to be satisfied with a small-sized apartment."
The increase in small apartment transactions is related to high-intensity loan regulations and the rise in the base interest rate. Previously, the Bank of Korea held a Monetary Policy Committee meeting last month and raised the base interest rate by 0.5 percentage points from 1.75% per annum to 2.25%. This was the third consecutive rate hike following those in April and May. Ultimately, as repayment burdens increase, buyers seem to be flocking to small apartments with relatively lower price burdens.
The growing proportion of 1-2 person households is also one of the reasons for the rising popularity of small apartments. According to resident registration population statistics from the Ministry of the Interior and Safety, the number of 1-2 person households increased by 2,913,402 households (23%) over five years, from 12,461,031 households in 2017 to 15,373,533 households in June 2022. Statistics Korea projects that the proportion of 1-2 person households will continue to expand, accounting for about 76% of all households by 2050.
Experts predict that the preference for small apartments will continue into the second half of this year. Park Wongap, Senior Real Estate Specialist at KB Kookmin Bank, said, "As interest rate hikes increase loan interest burdens, more people are turning their attention to small apartments. Especially among those currently purchasing apartments, the MZ generation (Millennials + Generation Z) is not insignificant, many of whom have weak economic foundations. Therefore, rather than bearing high interest burdens, they are likely to prefer small apartments with relatively less burden."
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