[First Half Review] ① Chaotic Real Estate Market... The Key Word for Jeonse is 'Reverse Jeonse'

Q2 Decline Narrowed Due to Regulatory Easing Effects Amid 'Bear Market'

Editor's NoteThe real estate market in the first half of this year was marked by a chaotic battle of strength between buyers and sellers. With interest rate hikes and the collapse of the U.S. Silicon Valley Bank (SVB), buyer sentiment plummeted, and until February, transaction volumes, the sales supply-demand index, and the actual transaction price index remained in a stagnant phase. The number of unsold homes exceeded 70,000 units, sparking fears that the market had reached a 'danger level,' which overshadowed the sales market, leading construction companies to postpone their sales schedules one after another.
As concerns over a real economy downturn grew, the government swiftly announced the '1·3 Measures' covering subscription, taxes, and loans, along with a special BoGeumjari Loan to ease funding for actual homebuyers. From early April, buying demand revived mainly for mid- to low-priced apartments under 900 million KRW, narrowing the decline in housing prices, and some regions even saw apartment prices turn upward compared to the previous month. This sparked debates between theories of a housing price bottom and cautious views.
The jeonse (long-term lease) market followed a similar trajectory to the sales market. In complexes with large supply in areas like Gangnam, Seoul, listings appeared at prices several hundred million KRW below market value, and actual contracts were made, pulling down jeonse prices. The rise in jeonse loan interest rates compared to last year shifted jeonse demand to monthly rent demand, and the decrease in jeonse demand and falling jeonse prices deepened reverse jeonse issues alongside jeonse fraud.
The sales market shows a stark contrast between the Seoul metropolitan area and provincial regions. While the subscription competition rate in the metropolitan area, which had many undersubscribed cases earlier this year, rose to 24:1 this month, a staggering 930,000 people applied for the non-priority subscription at Heukseok River Park Xi in Dongjak-gu, Seoul. However, subscription results outside Seoul were dismal, with first-priority subscription competition rates in major provincial cities failing to exceed 1:1. This polarization is expected to continue as long as the provincial housing market remains sluggish.
Experts predict the real estate market will remain flat in the second half of the year. Concerns over a reverse jeonse crisis persist, and the possibility of further interest rate hikes remains open, making a rebound unlikely. Recently, price burdens for entry have increased due to rising asking prices following the depletion of urgent sales, leading to a stronger wait-and-see stance among buyers.

The real estate market in the first half of this year is difficult to explain without mentioning the '1·3 Measures' and the special BoGeumjari Loan. Overall, both housing prices and jeonse prices fell, marking a declining market, but the government's '1·3 Measures' and the special BoGeumjari Loan emerged as rescuers, leading to a slowdown in the rate of housing price decline and an increase in transaction volumes in the second quarter. The market remains divided between views of a 'rebound' and a 'temporary rise.'

[Image source=Yonhap News]

Key Words in the Sales Market: '1·3 Measures' and 'Special BoGeumjari Loan'... Housing Price Decline Slows in Q2

According to the Korea Real Estate Board on the 30th, from December 2022 to May this year, the nationwide comprehensive housing sales price index fell by 4.05%. During the same period, apartments dropped the most at 5.56%, while multi-family houses decreased by 1.94%, and detached houses by 0.34%. Considering that the comprehensive housing sales price index rose by 0.22% during the same period last year, it confirms that the downward trend in housing prices, which began in the second half of last year, continues this year. During the same period, the metropolitan area fell by 4.71%, while provincial areas dropped by 3.43%, indicating that the metropolitan area, which had risen more sharply during the housing price surge, experienced a larger decline. The housing price decline rates in major regions were Seoul -3.01%, Incheon -4.23%, Gyeonggi -5.97%, Daegu -6.29%, Daejeon -4.63%, and Sejong -5.67%.

Private survey data also showed no respite from the housing price decline. According to Real Estate R114, from the end of last year to June this year (as of the 23rd), nationwide apartment sales prices fell by 3.13%. Seoul dropped by 2.97%, while Gyeonggi and Incheon fell by 3.59% and 4.55%, respectively. Daegu saw a 4.08% decline, ranking second after Incheon among the 17 metropolitan cities and provinces in apartment price drops. During the same period, Daejeon fell by 3.36%, and Sejong by 2.68%, which is considered a relatively good performance given that Sejong had the largest price drop last year.

Overall, the first half showed a negative trend, but when divided into the first and second quarters, the rate of apartment price decline gradually slowed. In fact, nationwide apartment prices saw the largest drops in February and March, at -0.42% and -0.40%, respectively, when buyer demand sharply contracted due to U.S. interest rate hikes and the Silicon Valley Bank collapse. Seoul followed a similar pattern. Since June 2022, when the Seoul apartment price change rate turned negative (-0.04%), the largest drops occurred in February (-0.44%) and March (-0.47%).

However, from April, 'rebound theories' began to emerge. The government's '1·3 Measures' to prevent a hard landing in the real estate market and the special BoGeumjari Loan to resolve the transaction freeze led to somewhat active buying demand for mid- to low-priced apartments under 900 million KRW, increasing transactions of urgent sale properties.

According to the Seoul Real Estate Information Plaza, apartment transaction volume in May was 3,373 cases. For two consecutive months, including April (3,189 cases), transactions exceeded 3,000 cases. As of June 29, transaction volume was 1,833 cases. With the previously stagnant sales market gaining some momentum, nationwide apartment prices narrowed their decline to -0.23% in April, -0.12% in May, and -0.05% as of June 23. In Seoul, the decline narrowed from -0.27% in April to -0.11% in May, and further to -0.05% in June.

Yeokyunghee, Senior Researcher at Real Estate R114, said, "From February to May, the average monthly apartment sales volume nationwide was about 30,000 cases, reflecting the combined effects of regulatory easing, a slowdown in interest rate hikes, and recognition of price bottoms, which led to transactions of urgent sale properties. After the depletion of urgent sale properties, the rate of apartment price decline slowed in the second quarter."

Jeonse Prices Fell 6% in the First Half... Key Issue in the Jeonse Market: 'Reverse Jeonse'

From the second half of 2021 to the first half of 2022, apartment jeonse prices peaked, and from the first half of this year, reverse jeonse emerged as a major issue in the jeonse market. 'Reverse jeonse' refers to cases where the current jeonse market price is lower than the jeonse deposit from two years ago. This makes it difficult for landlords to return deposits to existing tenants even if they find new tenants. The main reason for the worsening reverse jeonse problem is the decline in jeonse prices.

The decline in housing prices, the impact of large-scale move-in volumes in some areas, and the decrease in jeonse demand due to rising jeonse loan interest rates collectively pushed down jeonse prices. According to the Korea Real Estate Board, from the end of last year to May this year, the comprehensive jeonse price index fell by 6%. The metropolitan area saw a decline of -7.89%, and Seoul dropped by -7.05%, both exceeding the national average.

Expanding the reference point to the end of 2021, the comprehensive housing jeonse index fell by -11.25%, and apartments by -16.48%, showing even larger declines. During this period, Seoul's housing jeonse prices dropped by 13%, and apartment jeonse prices fell by over 19%. Assuming apartment jeonse prices remain at current levels in the second half, there are concerns that a reverse jeonse crisis could occur.

According to Real Estate R114, 58% of Seoul apartment jeonse contracts expiring in the second half of this year are estimated to be reverse jeonse. Yeokyunghee, Senior Researcher, said, "In the second half of this year, there are concerns about the expansion of reverse jeonse in areas with concentrated move-in volumes or many gap investments. Due to the burden of reverse jeonse and interest repayments, disposal listings may increase starting from outer areas, which could exert downward pressure on both sales and jeonse prices."

However, if recent declines in buying demand and rising monthly rent prices lead to a recovery in jeonse demand, the rate of jeonse price decline may slow. In that case, the feared reverse jeonse crisis may not be as severe. Kim Seonghwan, Associate Researcher at the Korea Institute of Construction Industry, said, "While issues related to jeonse deposit returns may continue in the second half, they are unlikely to exert downward pressure on overall market prices."