Impact of Real Estate Market Slump
[Asia Economy Reporter Yoo Je-hoon] Last year, the number of new subscriptions to the Housing Pension reached an all-time high. This is interpreted as an effect of the housing price turning to a downward trend due to the real estate market slump.
According to data submitted by the Korea Housing Finance Corporation (HF) to the office of Yoon Chang-hyun, a member of the People Power Party, on the 1st, the number of new subscriptions to the Housing Pension last year was recorded at 14,580. This is about a 35% increase compared to the previous year (10,805) and is the highest level since the introduction of the Housing Pension in 2007.
The Housing Pension is a system where homeowners aged 55 or older provide their house as collateral and receive monthly retirement living expenses for life. Since the pension amount is not determined according to the market price of the house evaluated at the time of subscription, it is advantageous to apply quickly during a phase when housing prices are falling.
Additionally, the fact that some homeowners hurried to subscribe due to forecasts that the monthly payment from HF might be adjusted downward also seems to have had an impact. According to the Housing Finance Corporation Act, HF adjusts the monthly payment every year considering variables such as housing price increase rate, interest rate, and life expectancy. HF has decided to reduce the monthly payment by 1.8% starting from new applicants in March.
On the other hand, the number of cancellations of the Housing Pension last year was 3,430, down about 33% compared to the record high of 5,135 in 2021. The sharp decline in cancellations is also largely attributed to the fall in housing prices. The number of cancellations had been increasing from 1,731 in 2017, 2,256 in 2018, 2,287 in 2019, 3,826 in 2020, to 5,135 in 2021. During the nationwide real estate price surge in 2020-2021, homeowners judged that it was more advantageous to enjoy capital gains from rising housing prices than the pension, which led to cancellations.
Meanwhile, the average housing price of households newly subscribed to the Housing Pension last year was 549 million KRW. This is an 80% increase compared to 2017, five years ago (305 million KRW). By region, Seoul had the highest average at 783 million KRW nationwide. The average in the metropolitan area including Gyeonggi and Incheon was 638 million KRW, while the provinces were only 342 million KRW. The average monthly payment based on cumulative subscribers was 1,156,000 KRW. The metropolitan area was 1,319,000 KRW, and the provinces were 807,000 KRW. The average age of pension subscribers was 72.1 years.
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