[THE Tilted Real Estate] ① Local Areas Are Regulation-Free Zones... The Price Gap Between Seoul and Local Housing Approaches 900 Million Won

The Moon Jae-in administration's policy to curb housing prices through strengthened regulations has instead resulted in more than doubling the polarization of housing prices between the Seoul metropolitan area and other regions. Tax regulations such as the reinforcement of comprehensive real estate tax intensified the preference for owning a single, well-located property, and the rising housing prices created an environment favorable for 'buying with jeonse (long-term lease)'. As a result, demand in the provinces increasingly shifted toward the metropolitan area, causing the gap in housing prices between the metropolitan area and the provinces to widen further. This remains an ongoing issue. Concerns are growing that the government's easing of regulations on subscription and loans, including in regulated areas earlier this year, has concentrated benefits in Seoul, thereby exacerbating polarization in the real estate market.

Seoul-Province Apartment Price Gap Widens by Over 200 Million Won in 6 Months

According to KB Real Estate statistics, the average apartment sale price in Seoul, which was 709.47 million won in March 2018, surged by 80% to 1.27992 billion won in June 2022. During the same period, the average apartment price in the metropolitan area nearly doubled from 454.38 million won to 810.55 million won.

Prices in the provinces also rose but the increase was shorter in duration and smaller in magnitude compared to the metropolitan area. The five major metropolitan cities saw prices rise from 268.91 million won to 405.92 million won, a 50% increase. Not only in terms of growth rate but also in absolute amounts, Seoul and the metropolitan area saw increases exceeding 300 to 400 million won, whereas the provinces only rose by nearly 200 million won.

From the third quarter of last year, as interest rate hikes became more pronounced, the price gap between Seoul and the provinces widened further. Comparing the simple average apartment sale price trends from March 2018 to June 2022, Seoul apartment prices increased by 970.55 million won, and the five major metropolitan cities by 317 million won, resulting in a difference of about 650 million won. However, from July to December last year, Seoul's average apartment sale price was 1.27471 billion won, while the five metropolitan cities were at 396.77 million won, widening the gap to 877 million won.

[Image source=Yonhap News]

After the 1·3 Real Estate Measures, Only Seoul's Market Revives... Provinces See Larger Declines

With the overlapping effects of economic recession and rising interest rates, the real estate market froze from the second half of last year as transaction volumes plummeted to near zero. However, since the 1·3 real estate measures, the mood in Seoul's real estate market appears to be shifting. This seems to be due to the effects of the government's active regulatory easing efforts starting earlier this year, which are manifesting in Seoul.

According to a survey by the Korea Real Estate Board, as of January 2, the provinces saw a 0.50% decline and Seoul a 0.67% decline, indicating a larger drop in Seoul. However, by the January 9 survey, the provinces declined by 0.41% and Seoul by 0.45%, showing a rapid slowdown in Seoul's downward trend and a significant narrowing of the gap. By the April 3 survey, the provinces' decline was 0.20%, while Seoul's was only 0.13%. On April 13, Seoul apartment prices fell by 0.11%, further reducing the decline from the previous week, whereas the provinces dropped by 0.24%, expanding the decline. In Seoul, some areas such as Songpa-gu have even seen price rebounds. According to weekly apartment price trends released by the Real Estate Board, last week Songpa-gu (0.02%) and Dongjak-gu (0.01%) recorded price increases.

Looking at KB Real Estate's average sale price statistics, the provincial average sale price, which barely held above 400 million won in July last year, dropped to 377 million won in March this year, while Seoul maintains an average sale price in the 1.2 billion won range. The gap in average apartment sale prices between Seoul and the provinces has widened to about 840 million won, larger than during the housing price rise period.

With the continuation of high interest rates and reduced liquidity in the real estate market, the 1·3 measures are expected to accelerate housing price polarization. Kyung Hee Yeo, chief researcher at Real Estate R114, said, "While nationwide housing prices continue to decline, Seoul may see a more gradual decline due to demand, but in the provinces, where speculative demand that increased during past housing booms has decreased, a steeper downward trend is expected to continue."