"Real Estate Now on the Rise: Regions to Watch in the Second Half [Apartment]"

Shin Ji-eun: Let's energetically start Apat today as well! We have a special guest on Apat today. He is a real estate expert. Professor Park Hapsu is here with us. Welcome, Professor.

Park Hapsu: Hello, nice to meet you.

Q. Real Estate Market Outlook for the Second Half of the Year

Shin Ji-eun: Recently, as we enter the second half of the year, there are many real estate forecasts, right?

On one side, some say we still need to wait, while others say the major risks are over. Opinions are divided. Which side do you lean towards?

Park Hapsu: My market outlook was that the first half of this year would see a decline, and the second half would show support. This was my forecast last fall, and it has been almost accurate. So I continue to maintain the outlook of support and stabilization in the second half.

For prices to fall further, there needs to be a large supply of properties on the market. Supply can be divided into two types: first, properties from multi-homeowners. Currently, the comprehensive real estate tax for multi-homeowners has been reduced to about one-third in 2023 compared to 2020, so their tax burden has decreased.

For example, if they paid 100 million KRW in 2020, now they pay about 30 million KRW, so the holding burden has disappeared. Also, capital gains tax and heavy taxation have been lifted in adjusted areas (except for Gangnam 3 districts and Yongsan until May 9 next year), so there is no heavy tax when selling anytime. Therefore, multi-homeowners have less holding burden and no heavy capital gains tax when selling, so urgent sales are very limited.

Then, there might be a question whether single-homeowners need to urgently sell their homes. But those who bought homes with great difficulty are mostly "Yeonggeuljok" (people who borrowed to the maximum). If 98% of Yeonggeuljok hold on, urgent sales will be limited, and overall, the decline in the second half will not be significant. The overall market situation is expected to develop in a supportive manner.

Shin Ji-eun: So, from the multi-homeowners' perspective, there is no urgent reason to sell houses, and single-homeowners also have no particular reason to put out urgent sales, right?

Park Hapsu: That's right. The direction of single-homeowners is a concern, but their biggest burden now is the interest rate hike. The question is whether they can bear the loan interest rates. Compared to last fall when loan interest rates rose to 6-7%, the current new loan interest rates are in the low 4% range, about 2% lower.

People who took loans last year probably took them on a 1-year or 6-month cycle, so if they endure the second half, there is hope that interest rates will fall next year.

Even if the US raises rates in July, future hikes will be minimal or only once, so uncertainty about rate hikes has been removed. Therefore, single-homeowners are expected to adopt a holding strategy in the second half with hope for lower rates next year.

Q. Is Now the Bottom?

Shin Ji-eun: You see a slight decline in the first half and stabilization in the second half, right? So do you think now is the bottom and further declines are almost none?

Park Hapsu: Further declines vary greatly by region but are limited. However, there is a shock yet to come: economic recession.

The variables controlling the market are the 'loan interest rate hikes' and 'how long the recession will last.' The timing of the recession is already being forecasted.

'When will it come? At the end of the year! In the first half of next year!' These are being announced. But if a crisis is announced or forecasted, is it really a crisis? When a recession is expected, people save income in advance to prepare.

So, from the perspective that a forecasted crisis is not a real crisis, even if a recession comes, the impact is likely to be shallow. In fact, data shows the recession has already started since around December last year. South Korea's economic growth rate, GDP growth rate, is about 1.5, and the IMF recently lowered it to 1.4.

South Korea's usual growth rate is mid-2% to 3%, but now it's set about 1% lower. So we can say we are currently in a recession, and next year is expected to be the final stage beyond the mid-point of the recession. Considering this, the overall market may be affected by the sluggish economy but can be sufficiently prepared for. Also, next year, with the US presidential election and South Korea's April election, a turnaround can be expected.

Considering liquidity in this situation, the depth of the recession is not expected to be very severe.

Shin Ji-eun: In a way, since we are already in the middle of the recession, only recovery remains ahead. Now is the bottom! Let's hold on a bit more! This seems to be the prevailing sentiment.

Q. Which Region Will Show the Fastest Recovery or Rebound in the Second Half?

Park Hapsu: Looking at South Korea, especially Seoul, there is an order in which apartment prices rise and fall. Areas with a lot of money and wealthy people are relatively free from interest rate hikes and recession. If they see high future value, they boldly purchase real estate. In that sense, the first region to rise is Gangnam.

This year, in fact, it has been the Gangnam era since the first half. When Gangnam rises, where does it go next? Across the river. Crossing the river from Gangnam leads to Mapo-Yongsan-Seongdong, called Mayongsung. In Seongdong, Wangsimni, then Dongdaemun, Cheongnyangni. From Cheongnyangni, it flows north to Nodogang (Nowon, Dobong, Gangbuk), then Mapo, and across to Yeongdeungpo-gu Yeouido. From Yeongdeungpo, it expands to Yangcheon, Gangseo, as well as Guro and Gwanak. Looking at the current situation following this flow, it is close to the Gangnam era and Mayongsung era.

Q. What Areas and How Should Real Estate Investment Be Made in the Second Half?

Shin Ji-eun: What areas and methods would you recommend for newlyweds or non-homeowners to buy homes?

Park Hapsu: There are two possible directions.

First, if you do not want to move out of Seoul to Gyeonggi-do, you can look for stations with high future value. There are two main areas to focus on.

Nodogang, the Sanggye-dong area in Nowon-gu, and (if living in the southern area) Guro, Geumcheon, and Gwanak. These areas are worth considering. Besides subway Line 2, the Sinansan Line passing through Guro and Geumcheon is expected to open around 2025, allowing arrival at Yeouido in about 15 minutes.

Gangnam is also close. You can transfer between Lines 2 and 7 to get to Gangnam, so these areas are worth considering.

Also, in Nowon-gu, besides the apartment district in Sanggye-dong, there is the Kwangwoon University station area with development issues. Not only station area development but also the GTX station will be built, and if the Dongbu arterial road is undergrounded, this area will have excellent concentration. It is superior in location compared to Jangwi New Town across the river, and with reconstruction, expected profits can increase significantly, so it deserves attention.

Second, for newlyweds who can afford about 60m² (25 pyeong) in Seoul, it is necessary to broaden the view and pay attention to the first-generation new towns.

The representatives of the first-generation new towns are Bundang and Ilsan (there are also Pyeongchon, Jungdong, Sanbon). Bundang is realistically hard to reach, but in Ilsan, you can consider around Madu Station on Line 3 or Baengma Station on the Gyeongui-Jungang Line. In this area, about 34 pyeong is accessible for mid to high 500 million KRW.

Moreover, with redevelopment plans for the first-generation new towns, there is an expectation of about 50% price increase. Transportation-wise, GTX-A will open in June next year, taking only about 15 minutes to Seoul Station.

Currently, transfers between the Gyeongui-Jungang Line and Lines 2 and 5 are possible. Commute times are only 30-40 minutes, so expectations for this area are reasonable.

Shin Ji-eun: How about Gimpo?

Park Hapsu: Caution is needed for places served by light rail. Typical urban light rail trains have two cars. Installing a two-car train to serve a new town means decision-makers, including the Ministry of Land, Infrastructure and Transport, had to consider carefully.

To compensate, Subway Line 5 runs, but you have to wait another 10 years for the Hangang Line to open. Therefore, I would advise against going to Gimpo.

Rather, compared to Gimpo Hangang New Town, it would be better to consider Geomdan New Town. From Seoul's perspective, Geomdan New Town is much closer. The Incheon Airport Railroad and Line 1 run there, and it is about 10 minutes from Gimpo Airport, so accessibility is very good.

So far, I spoke about the west side, but looking east, the era of Guri and Namyangju will open in about a year. People in Gwanghwamun downtown or Yeouido might think Namyangju is far, but for those in Gangnam, the subway Line 8, which will open in June next year, connects directly to Gangnam in 30-40 minutes, so it is worth considering.

It has the location to be considered Seoul's 26th district, so Guri, Namyangju, and Dasan New Town are also worth attention.

Q. Local Real Estate Outlook for the Second Half

Shin Ji-eun: We mainly talked about Seoul, but are there any local areas worth watching?

Park Hapsu: From an investment perspective, the current market is the worst. Especially Daegu has the highest unsold apartments nationwide, and it will take about two years to recover.

Since Daegu is the lowest point, it is valid to have interest. However, buying an apartment in the provinces for investment is not highly recommended. Also, long-distance investment is somewhat burdensome, so rather than splitting into two houses, focusing on one smart house as a single-homeowner is a much more effective strategy.

For example, strategies like changing regions every three years to move to better areas, or moving to areas with good future value through reconstruction, or increasing the size of the house?these strategies are more effective.

Single-homeowners can get 100% capital gains tax exemption for properties under 1.2 billion KRW, so using this can save 100% on taxes.

Shin Ji-eun: I have lived in my house for exactly three years now. Would it be okay to try changing houses around this time?

Park Hapsu: Yes, you should. We tend to be proud if we live in one area for 10 years. Of course, for ultra-high-priced homes, there is a long-term holding special deduction of 8% per year up to 80%, so there is a big tax-saving possibility, but for properties under 1.2 billion KRW, that is unnecessary.

Shin Ji-eun: Someone said that moving houses frequently is very good from an investment perspective. Hearing that again from you, Professor, I will aim for one smart house rather than local properties.

There must be viewers like me, so this will be very helpful. So far, we asked Professor Park Hapsu about the real estate market outlook for the second half. We will continue the discussion in Part 2.

Professor Park Hapsu

- Current Adjunct Professor at Konkuk University Graduate School of Real Estate
- Current CEO of Park Hapsu Real Estate Research Institute
- Current Advisory Professor at Korea Institute of Finance
- Former Senior Real Estate Specialist at KB Kookmin Bank