NH Investment & Securities "Short-term Real Estate Recovery Difficult This Year... Interest Rates and Policy Variables"

'2023 Real Estate Market Outlook and Response Strategies' Report Published
Main Variables This Year: Government Regulation Easing, Interest Rates, Jeonse Stabilization

[Asia Economy Reporter Hwang Yoon-joo] NH Investment & Securities forecasted that a short-term recovery in the real estate market would be difficult this year. They identified policy and interest rates as the major variables affecting the real estate market.

On the 20th, NH Investment & Securities published a real estate report titled '2023 Real Estate Market Outlook and Response Strategies' containing these insights. The report was issued to forecast the duration of the market downturn and the timing of the market bottom in 2023, as well as to suggest response strategies for market participants.

According to the report, a short-term recovery is expected to be difficult due to the causes of this year's real estate market decline, the speed of the drop, and the lagged effects of interest rate hikes and policies. This is because the market fell rapidly last year at a pace comparable to the approximately five-year decline following the 2008 financial crisis. Additionally, unlike previous downturns, the simultaneous decline in both sale prices and jeonse (long-term lease) prices is further freezing market sentiment. The lag in the effects of interest rates and policies also makes it difficult for market sentiment to turn around.

The report evaluated policy and interest rates as the key variables influencing this year's real estate market. It explained that the macroeconomic environment needs to stabilize, including interest rates converging to appropriate levels and inflation issues being resolved. Along with this, there is a possibility of a rebound when price volatility and uncertainty decrease and investment demand increases due to regulatory easing policies.

Jeong Bo-hyun, Advisory Committee Member of NH Investment & Securities WM Masters (Research Fellow at NH Investment & Securities), pointed out that the simultaneous decline in jeonse prices increases downward pressure on sale prices. This means that stabilizing the jeonse market should precede any reversal in the declining real estate market sentiment.

Research Fellow Jeong explained, "The core of the current government's real estate policy is 'gradual regulatory easing,' but even with gradual easing, market transaction activation has been insufficient. It is important to pay attention to the impact on the real estate market of the significant regulatory relaxations, such as the launch of the special Bogeumjari Loan announced at the end of last year, easing regulations on multi-homeowners, and the full deregulation of areas excluding the Gangnam 3 districts and Yongsan district earlier this year."

Research Fellow Jeong cited interest rates as the second important variable. He said, "Due to steeper-than-expected interest rate hikes last year, buying sentiment froze, real estate prices declined, and the transaction cliff continued. Although the rate of increase in Korea's base interest rate is gradually slowing, the issue of US interest rate hikes remains, and the lag in interest rate changes will continue to affect market uncertainty." He forecasted that recovery could be expected after interest rate hikes and inflation issues are resolved.

He advised that for the housing non-owners, attention should be paid to the subscription market as major complexes in Seoul such as Banpo and Bangbae will hold subscription events this year, and the subscription system is expected to be reformed. For one-homeowners, he recommended confirming changes in the interest rate hike trend, switching to loans with lower interest rates, or planning repayments to hold properties as long as possible. For those looking to trade up, he suggested monitoring the timing of increased transaction volume and selling currently held properties before purchasing new ones. For multi-homeowners, he noted that as high interest rates persist, real estate with high cash flow value will increase, making profit checks important. Additionally, Research Fellow Jeong proposed shifting the focus of asset management from capital gains to income due to the housing market slump and accelerated conversion to jeonse and monthly rent.

The report was distributed to NH Investment & Securities WM Center and PB Center, and customers wishing to receive the report can inquire through their respective advisors or PBs.