Gap Investment Nationwide No.1 'Incheon Songdo'... January Transaction Volume Also Doubled

Sharp Drop in House Prices and Deregulation Lead to 'Gap Investment' Ranking First in Last 3 Months
Special BoGeumjari Loan Expected to Boost Songdo Transactions Further
Experts Say "Absorption of Urgent Sales... Market Reversal Difficult for Now"

Songdo-dong in Yeonsu-gu, Incheon, was recently identified as the area with the highest number of apartment gap investments (purchases with jeonse deposits) nationwide over the past three months. Amid the recent easing of real estate regulations, the volume of apartment transactions in Songdo-dong in January nearly doubled compared to the previous month, following a sharp decline last year. However, experts predict that this is merely a process of absorbing listings centered on urgent sales and that it will be difficult for the market to reverse in the near term.

Panoramic view of Songdo International City, Incheon.
Photo by Asia Economy DB

According to the Ministry of Land, Infrastructure and Transport's real transaction price disclosure system on the 7th, the number of apartment transactions in Songdo-dong, Yeonsu-gu, Incheon, was 212 in January. This is an increase of 91 transactions compared to 121 in December of last year. The transaction volume for February in this area currently stands at 294, and considering that transactions registered within 30 days of the actual transaction date are still being added, the February transaction volume is expected to increase further.

The primary reason for this increase in transaction volume is the rise in 'gap investment,' where apartments are purchased with jeonse deposits. Typically, as housing prices fall, the gap (the difference between the sale price and the jeonse price) narrows, and last year, apartment prices in Songdo dropped sharply. According to the Korea Real Estate Board, while nationwide apartment prices fell by 7.22% last year, apartment prices in Yeonsu-gu, Incheon, plummeted by a staggering 15.1%, more than double the national average.

With housing prices plunging and real estate regulations easing, demand for gap investments in this area increased. In fact, Songdo was the region with the highest number of apartment gap investments nationwide over the past three months. An analysis by Yang Ji-young R&C Research Institute of data from the real estate big data company 'Asil' on gap investment transactions by eup, myeon, and dong over the last three months showed that Songdo-dong, Yeonsu-gu, Incheon, had the highest number of gap investment transactions at 12.

As urgent sale properties in this area began to be traded, actual transaction prices appear to have bottomed out and are rising. For example, an 84㎡ unit in Songdo The Sharp First Park F13-1BL was traded on February 7 for 850 million KRW, up 90 million KRW from 760 million KRW in December last year. Similarly, an 84㎡ unit in Songdo Global Park Verdiium, which had dropped to 690 million KRW on January 26, rose to 820 million KRW by February 22, an increase of approximately 130 million KRW in about a month. According to the Korea Real Estate Board, as of the 27th of last month, Yeonsu-gu, Incheon, recorded a decline rate of 0.15%, showing a gradual recovery from the previous week's 0.21% drop.

A real estate agent operating in Songdo New City, Mr. A, said, "As inquiries from people who believe housing prices have bottomed out increased, most urgent sale properties were sold out around the end of January, and since then, asking prices have continued to rise." He added, "Some homeowners who had listed their properties in the 800 million KRW range just a month or two ago have withdrawn them or are now listing them for 1 billion KRW."

In particular, there is much analysis that the transaction volume in Songdo will increase further due to the 'Special Bogeumjari Loan' (Special Housing Loan) that began full operation last month. The government launched this fixed-rate mortgage product on January 30, targeting houses priced under 900 million KRW, which allows borrowing up to 500 million KRW at a minimum annual interest rate of 3.25% without income verification. Most apartment complexes in Songdo, where prices have sharply declined, meet these conditions.

According to an analysis by Real Estate R114 of the Ministry of Land, Infrastructure and Transport's real transaction data, the number of apartment sales transactions in the Seoul metropolitan area in January this year was 6,647 (surveyed on February 15, based on contract dates). Incheon (1,163 transactions) surpassed 1,000 transactions for the first time in seven months since June last year. Since 62.8% of sales contracts were for mid-to-low priced apartments priced between 300 million KRW and 900 million KRW, the surge in transaction volume in the metropolitan area in January is attributed to increased trading of mid-to-low priced apartments.

However, experts predict that the current market is showing a concentration phenomenon centered on areas with excessive price drops and that it is difficult to see this as a market reversal. Park Won-gap, Senior Real Estate Specialist at KB Kookmin Bank, said, "Songdo was one of the representative areas with a large price drop last year, so it seems that speculative investors' counter-buying has been attracted due to factors such as the Special Bogeumjari Loan and gap investments." He added, "Since transactions are still mainly occurring in large complexes in severely declined areas, it remains to be seen whether this will lead to a market reversal."