[2023 Real Estate Outlook] 90% of Experts Say "Jeonse Prices Will Fall Further Next Year"

Increasing Preference for Monthly Rent
6 Experts Say "Jeonse Prices Will Fall 2-4%"

[Asia Economy Reporter Tae-min Ryu] Nine out of ten real estate experts predict that jeonse prices will continue to decline next year. This is due to the influx of more than 170,000 new housing units in the metropolitan area alone, coupled with the ongoing impact of interest rate hikes, which is likely to shift existing jeonse demand towards monthly rent.

On the 7th, Asia Economy conducted a survey asking 10 real estate experts about their outlook on next year's jeonse prices. Nine respondents (90%) expected that "jeonse prices will fall" next year. This is because the burden of loans has increased due to consecutive interest rate hikes, reducing jeonse demand and strengthening the preference for monthly rent. The Bank of Korea's Monetary Policy Committee raised the base interest rate by an additional 0.25 percentage points to 3.25% annually on the 24th of last month, marking the first time in history that rates have been raised six consecutive times.

Among those who predicted a drop in jeonse prices, more than half?five respondents (55%)?also expected monthly rent prices to rise next year. Ham Young-jin, Head of Zigbang Big Data Lab, explained, "Due to the impact of high interest rates, jeonse demand is likely to shift to monthly rent, which will lead to a decline in jeonse prices." Lim Byung-chul, Head of Research at Real Estate R114, also forecasted, "While the use of the contract renewal request right reduces jeonse demand, the increased interest burden will raise the preference for monthly rent."

Regarding the extent of the jeonse price decline next year, 60% anticipated a 2?4% drop. Considering that the average jeonse price for apartments in Seoul was 659.8 million KRW in November, this implies a maximum decrease of 26.4 million KRW next year. If the forecast holds, the average jeonse price for Seoul apartments will fall to 633.4 million KRW, which is similar to the level in July last year (634.83 million KRW). The average jeonse price for Seoul apartments reached a record high of 677.92 million KRW in June but has been declining for five consecutive months since then.

Additionally, the supply is expected to increase as the number of new apartment move-ins rises. According to Real Estate R114, the planned apartment move-in volume in the metropolitan area next year (including rentals) is 178,274 units, similar to this year's 180,397 units. The planned move-in volume in Seoul next year is 24,310 units, 195 units more than this year's 24,115 units. By district, the planned move-in volume in the four Gangnam districts?Seocho-gu, Gangnam-gu, Songpa-gu, and Gangdong-gu?is 12,402 units next year, more than three times this year's 3,592 units.

Outside Seoul, Gyeonggi Province is expected to have 108,980 units, slightly fewer than last year's 113,767 units, but still a substantial supply. Incheon is also expected to have sufficient supply with 44,984 units, an increase of 2,469 units compared to this year's 42,515 units. Among regions, Gyeonggi Province was identified as the area where jeonse prices are expected to fall the most next year. Four respondents selected Gyeonggi Province, followed by Incheon and small to medium-sized cities in other provinces, each chosen by three respondents.

Kim Sung-hwan, Associate Research Fellow at the Korea Construction Industry Research Institute, explained, "Next year, a large number of new apartment move-ins are expected, and the volume of 'unsold units after completion' is gradually increasing, leading to a significant accumulation of jeonse properties." Kwon Joo-an, Research Fellow at the Construction Policy Research Institute, also said, "With pre-sale subscriptions planned for next year and abundant supply, jeonse demand is expected to decrease," adding, "This will lead to a decline in jeonse prices by about 3?4%."