[Asia Economy Reporter Kim Min-young] Due to the impact of interest rate hikes, the median jeonse price of apartments in Seoul has fallen below 600 million KRW. Although jeonse prices are declining, the monthly rent conversion rate has been rising for four consecutive months. This is because, amid a transaction freeze, landlords are converting sale listings into jeonse listings, and the burden of loan interest has increased sharply due to rapid interest rate hikes, leading to a preference for monthly rent.
According to the monthly time series data from KB Kookmin Bank on the 25th, the median jeonse price of Seoul apartments this month was 599.66 million KRW. This is the first time since February last year (597.39 million KRW) that it has fallen below 600 million KRW.
The median price is the price located exactly in the middle when the survey samples are arranged in order of price. Unlike the average price, which is greatly influenced by price fluctuations of low-priced or high-priced housing, the median price purely considers the central price, so it is mainly used to assess market trends.
According to Kookmin Bank, the median jeonse price of Seoul apartments first surpassed 600 million KRW in February last year and rose to 626.8 million KRW in September last year. However, after the suspension of jeonse loan disbursements in October last year, it fell to 621.16 million KRW and dropped by 1.14% month-on-month this month, breaking the 600 million KRW level. This is interpreted as a decrease in jeonse demand due to the increased burden of jeonse loan interest caused by interest rate hikes.
The median price of apartments in the 14 districts of Gangbuk was 531.88 million KRW, down 0.47% from last month (534.37 million KRW), while in the 11 districts of Gangnam, it fell 1.57% from 687.55 million KRW to 676.75 million KRW, showing a larger decline than in Gangbuk.
Outside of apartments, the median jeonse price of Seoul row houses was 231.79 million KRW, down 0.03% from last month (231.87 million KRW), whereas the median jeonse price of detached houses rose 1.22% from last month’s 333.55 million KRW to 337.63 million KRW.
The average jeonse price of Seoul apartments recorded 663.86 million KRW, higher than the median price, but fell 1.42% from September’s 673.44 million KRW.
While jeonse prices are falling, the jeonse-to-monthly rent conversion rate (the annualized rate applied when converting jeonse deposits to monthly rent) has been rising for four consecutive months. This appears to be due to increased demand to convert jeonse deposits into monthly rent instead of raising the jeonse deposit, as the burden of loan interest grows.
According to Kookmin Bank’s survey, the average jeonse-to-monthly rent conversion rate for Seoul apartments this month was 3.28%, up 0.04 percentage points (p) from 3.24% in September. This is the highest level in a year and a half since April last year (3.29%).
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