[2024 Real Estate Outlook] Demand and Supply Asymmetry... Chaotic Real Estate

Editor's NoteThe real estate market entering the new year 2024 is in turmoil. Various real estate-related indicators such as transaction volume, sale prices, and unsold units point to a decline, while construction-related indicators related to housing supply, such as orders, permits, and groundbreaking, have sharply contracted, stimulating house price increases. Amid this, the workout (corporate restructuring) crisis of Taeyoung Construction, ranked 16th in the industry, has emerged, bringing the construction industry's real estate project financing (PF) issues to the surface. Beyond the asymmetry of supply and demand, financial instability has also joined, creating a mixed situation. Given this, opinions in the market are divided. Some argue for rising house prices, while others predict the downward trend will continue.

Apartment complex view in Seoul.

Domestic housing and real estate research institutions view the 2024 real estate market negatively. The Korea Construction Industry Research Institute and the Korea Institute of Construction Policy forecast a 2% nationwide housing price decline compared to the previous year, while the Housing Industry Research Institute predicts a 1.5% decrease. This is due to a series of negative factors dampening buyer sentiment, including the ongoing high-interest rate environment, economic slowdown, and real estate project financing (PF) crisis. However, they also analyze that there is a possibility of a rebound due to worsening supply-related indicators caused by the sluggish construction market.

Real Estate Entering Adjustment Phase, Interest Rate Decline is Key

The reason housing and real estate research institutions predict a market decline this year is based on various real estate-related indicators. The numerical market data clearly shows an adjustment phase. Currently, the real estate market is rapidly weakening in housing purchase sentiment due to accumulated fatigue from high interest rates, economic recession, and sharp house price rebounds. The difference in price perception between sellers and buyers has reduced housing transaction volumes to the lowest level since May last year.

According to the most recent statistics released by the Ministry of Land, Infrastructure and Transport, nationwide housing transaction volume in November last year was 45,415 cases, a 5.0% decrease from 47,799 cases in the previous month. This marks three consecutive months of decline since September, when the 50,000 mark was breached (49,448 cases).

On the other hand, listings continue to accumulate. According to the real estate big data platform ‘Asil’, as of the end of 2023 (December 31), apartment listings across 17 cities and provinces nationwide totaled 505,420 units. Compared to 389,233 units registered at the end of 2022, this is a 29.8% (116,187 units) increase over one year.

The downward trend in house prices is also clear. According to the Korea Real Estate Board, the nationwide apartment price change rate for the third week of December last year (as of the 18th) was -0.05%. Prices have fallen for four consecutive weeks since the last week of November. The subscription market shows a similar pattern. Polarization occurs due to differing views between suppliers and demanders on the appropriate supply price. While pre-sale sites offered below surrounding market prices see fierce subscription competition, high-priced projects face a surge in unsold units.

These phenomena all stem from increasingly cautious demanders. For a turnaround, interest rates must fall, but it is difficult to predict the timing under current conditions. The market currently expects the Bank of Korea to lower the base interest rate in the second half of the year.

Decrease in Housing Supply Stimulates House Prices

Conversely, the decrease in housing supply is a factor driving house price increases. Since last year, the construction industry has been reducing supply volumes due to the economic downturn-induced real estate transaction slump and rising raw material costs.

According to housing statistics released by the Ministry of Land, Infrastructure and Transport, cumulative housing permits from January to November last year totaled 294,471 units, a 36.9% decrease compared to the previous year. During the same period, cumulative groundbreaking volumes also fell sharply by 52.4% to 170,378 units. Completed housing volumes are also showing a steep decline. As of November last year, cumulative completions decreased by 21.6% to 282,975 units.

Notably, construction orders, an indicator of housing supply two to three years ahead, recorded the largest drop in 25 years since the 1998 foreign exchange crisis. According to Statistics Korea, construction order amounts (current prices) from January to November last year decreased by 26.4% compared to the same period the previous year.

Within the industry, concerns are growing that the real estate PF market will shrink further and housing supply will decrease due to crises such as the workout application by Taeyoung Construction.