Apartment Transaction Volume Halved... Sighs Over Unable to Move into New Homes

[Asia Economy Reporter Minyoung Kim] Due to an unprecedented transaction freeze, an increasing number of homeowners are unable to sell their existing homes, causing their plans to move to fall through, or they have purchased new homes but cannot dispose of their previous ones, leaving them stuck. With growing expectations that the interest rate hike trend will continue until the second quarter of next year, the current transaction freeze is expected to persist. The number of homeowners immobilized by the high-interest-rate situation is likely to increase further.

◆Moved for educational reasons but unable to sell existing home, paying 3 million won in loan interest only= Ms. A, a woman in her 40s, bought an apartment in Incheon this May, hoping to raise her child born after turning 40 in a better environment. She placed sales advertisements for her existing apartment in Seoul at 19 nearby real estate agencies in February this year. Before selling the apartment, she covered the shortfall in down payment and intermediate payments with a mortgage loan from a secondary financial institution. Although the government extended the capital gains tax exemption period for ‘temporary two-homeowners’ to two years, Ms. A does not qualify because the implementation date was fixed as August 1. If she fails to sell her existing home within six months, the mortgage loan will be recalled, and she will be unable to obtain a mortgage loan for the next three years. However, with the disposal deadline of November fast approaching, she has not even received any purchase inquiries. Ms. A sighed, saying, "It has been three months since no one has come to see the house," and "Since the house hasn’t sold, I am paying 3 million won in loan interest every month."

◆Unable to sell Sejong house bought due to local work assignment, paying 2 million won monthly rent= Mr. B, who was assigned to Sejong City at work, purchased an apartment in Dodam-dong, Sejong City, in 2017. This apartment, bought with a premium of 30 million won, soared from a sale price of 300 million won to over 900 million won. When Mr. B received an order to return to Seoul last year, he registered the property for sale at a nearby agency in May of that year. However, no purchase calls came in during the three months that followed. Unable to wait any longer, the agency suggested renting it out instead of selling. With no choice but to return to Seoul, Mr. B rented it out for 280 million won on a jeonse (long-term deposit lease) basis, but the deposit was insufficient to secure a jeonse in Seoul. Mr. B said, "The average jeonse price in Seoul is about 600 million won, which is far beyond what I received in Sejong," and added, "Because I still own the existing house, I cannot get a loan, so I am currently paying 2 million won monthly rent."

◆Apartment bought for 800 million won drops to 700 million won... plan to move to a better area dashed= Newlyweds Mr. and Mrs. C purchased an apartment in Gireum New Town, Seoul, in early last year for 750 million won through a quick sale. The apartment price rose by 100 million won that same year, and they planned to move to a better area such as Hyehwa or Mapo if prices increased further this year. However, the current asking price has dropped to about 700 million won. Considering interior costs (30 million won), real estate brokerage fees, and taxes, they need to sell for at least 800 million won to break even. Mr. C said, "We were planning to have children and wanted to move to a better area like Hyehwa or Mapo, but listings keep piling up with no transactions," and lamented, "In Gangbuk-gu, especially in areas like New Town with abundant supply, house prices are falling much faster than in other regions."

As homeowners give up on selling their existing homes and abandon plans to buy new ones, the transaction freeze is worsening. A vicious cycle of failed sales → abandoned purchases → accumulation of listings is repeating. According to the Seoul Real Estate Information Plaza, apartment transactions in Seoul in August totaled 659, a slight increase of about 10 from July (643), but this was the lowest August transaction volume since the real transaction survey began in 2006.