[The Beginning of the Housing Price Bubble Collapse] ① Sejong and Incheon Crumble... Seoul's Unbeatable Subscription Is a Thing of the Past

House Prices Overvalued Areas See Larger Declines... Unsold Units 'Nationwide'
"Sale Price Bottom Expected Between March 2024 and February 2025"

[Asia Economy Reporter Noh Kyung-jo] As the real estate market freezes, house prices are falling and the transaction cliff phenomenon is intensifying. The era of lottery-like pre-sale is a thing of the past, and the fever for Seoul subscription has long since cooled. This is because the era of 'low interest rates and excess liquidity,' which caused the surge in house prices, has ended, and the era of 'interest rate hikes and tightening' is in full swing. For this reason, some voices are growing louder, predicting a crash in house prices to the level of a 'bubble collapse' due to the impact of US-originated interest rate hikes.

On the other hand, there is also a considerable diagnosis that the current decline in real estate prices is close to a downward stabilization. This is because, as house prices rose sharply during the Moon Jae-in administration, the current situation is seen as the real estate market beginning to find its footing. The Korea Institute of Construction Policy (KICP) analyzed in its 'Construction Market and Issues Seen Through Q3 2022 Indicators' published last month that the peak of price changes in sales and jeonse was November last year. Asia Economy examined the current status and causes of the domestic real estate market in four parts.

◆ Overvalued Sejong and Incheon House Prices Collapse... Speculative Overheated Zones Lifted Amid Sharp Declines

View of the apartment complex in Sejong City from the Government Sejong Complex.
[Photo by Yonhap News]

The collapse of the housing price bubble involved a kind of base effect. House prices in Sejong and Incheon, which recorded the highest growth rates in 2020 and 2021 respectively, plummeted.

According to a survey by Real Estate R114 Labs on the 11th, the nationwide apartment sales price change rate as of the end of September this year compared to the end of October last year, before the price decline trend fully began, was 0.46%. During the same period, Sejong and Incheon decreased by 4.31% and 2.99%, respectively. Following were Daejeon (-2.17%) and Daegu (-1.95%) with large drops.

Sejong recorded the highest annual apartment sales price increase rate (44.9%) two years ago based on Korea Real Estate Board statistics, thanks to the 'completion theory of the administrative capital.' However, due to sluggish relocation speed and external factors such as interest rate hikes, the upward trend in house prices was broken, and it fell the most among all cities and provinces nationwide over the past year.

Incheon house prices, which had a cumulative increase rate of 17.2% until mid-September last year, also collapsed into a downward market after the end of the year. As real estate prices surged under the previous administration, attention that had been concentrated only east of Seoul shifted to Incheon. Buying sentiment intensified, and the number of 'Younggeuljok' (people who borrowed to the limit to buy houses) increased, causing an investment frenzy not only in Songdo New City but also in Yeonsu-dong and other areas.

However, the overvalued house prices in Sejong and Incheon quickly went downhill amid the economic recession. As a result, on the 21st of last month, four areas?Sejong and Incheon’s Yeonsu, Namdong, and Seo districts?were removed from the speculative overheated zones while maintaining their status as adjustment target areas. Daejeon and Daegu also began to see house prices decline since the end of last year.

Downward pressure on prices in these areas is expected to intensify further. The Bank of Korea explained in its 'Q3 Regional Economic Report (Golden Book)' published on the 28th of last month that "recent housing prices show differentiated trends by region, such as between metropolitan and non-metropolitan areas and among cities and provinces," and "although apartment supply over the next two years will not reach the recent three-year average in most regions, Daegu, Incheon, and Chungnam exceed past averages significantly, increasing downward price factors."

The housing market downturn is also expected to continue for the next two years. KICP predicted that the sales price bottom will be between March next year and February 2024, and the jeonse price bottom will be in February 2025. A KICP official said, "With continuous interest rate hikes and the end of the capital gains tax deferral next year, along with the disappearance of the effect of locked-up listings leading to increased transactions, the decline in house prices could be even greater."

◆ Fading Perfect Sales and Unbeatable Subscription Fever... Calls for Measures on Unsold Houses

'Dongdaegu Prugio Briscent' Perspective View [Provided by Daewoo E&C]

Complete sales of pre-sale units have become a thing of the past. Even unranked subscription (jupjup) shortages are common. Unsold houses bottomed out at 14,094 units at the end of November last year and have been increasing every month this year.

According to the Ministry of Land, Infrastructure and Transport, as of the end of August, the total number of unsold houses nationwide was 32,722 units, up 4.6% (1,438 units) from the previous month. In particular, unsold houses in the metropolitan area were 5,012 units, increasing 10.7% (483 units) in one month, with Incheon’s unsold units more than doubling from 544 units at the end of July to 1,222 units at the end of August. In provincial areas, the number increased 3.6% (955 units) from 26,755 to 27,710 units during the same period.

By city and province, Daegu (8,301 units), Gyeongbuk (6,693 units), and Gyeonggi (3,180 units) had the most unsold houses. In Daegu, unsold houses exceeded 8,000 units for the first time in 10 years and 8 months since December 2011 (8,672 units). For example, Daewoo Construction’s 'Dongdaegu Prugio Briscent' (794 units), which was pre-sold in December last year, is still selling units. The first-rank subscription competition rate was only 0.53 to 1.

In response, the Housing and Urban Guarantee Corporation (HUG) designated 11 areas including Jung, Dong, and Nam districts of Daegu, Ulju-gun in Ulsan, Gyeongju in Gyeongbuk, Gwangyang in Jeonnam, Asan in Chungnam, and Pyeongchang in Gangwon as 'unsold management areas' subject to pre-screening for pre-sale guarantees in August.

Even Seoul, where subscription was once unbeatable, can no longer be assured. On the 4th, 'Cheonwang Station Moa Elga Treview' in Oryu-dong, Guro-gu, conducted jupjup for 129 out of 140 units, but 101 units remained unsold. This complex had an average competition rate of 0.85 to 1 in the first-rank subscription at the end of August, and many contract cancellations followed.

Unless the economy recovers to a certain level, unsold houses will continue to increase, but the pace may be controlled as construction companies adjust their speed. At the same time, voices from the construction industry are calling for government measures. The Korea Housing Builders Association submitted a report titled 'Measures to Resolve the Housing Market Downturn' to the Ministry of Land, Infrastructure and Transport last month, requesting the government to expedite the approval of rental housing registration and for the public sector to purchase unsold houses.