[Aftermath of PF Crisis]④ Seoul Housing Supply Hits Lowest in 34 Years... More Severe Than MB Era's Dark Period

Construction Cost Surge, Interest Rate Hikes, and Real Estate Slump Impact

Significant Reduction in Housing Supply Mainly in Seoul and the Metropolitan Area

Yeomchang-dong Apartment. Photo by Jo Yongjun jun21@

"This year’s housing supply in Seoul is expected to be the lowest since 1990. The apartment supply in the Seoul metropolitan area is also projected to decrease by 21.1% compared to the past five years."

There are forecasts of an unprecedented housing supply drought due to the aftershocks of high inflation, high interest rates, and economic recession that have swept through the construction and real estate markets. Supply shortages should lead to price increases. However, due to various uncertainties weighing down the market, such as the real estate project financing (PF) crisis, price increases are not expected to appear for the time being. Despite the housing supply drought, the impact of the recession is so severe that it is difficult for prices to rise.

On the 6th, KB Financial Group Management Research Institute stated in the ‘KB Housing Market Review’ that the housing supply in Seoul this year is expected to be 11,422 units. This is only about half the level of 2012 (20,336 units), when Seoul’s housing supply hit rock bottom during the Lee Myung-bak administration, which experienced a severe real estate slump due to economic recession and sluggish sales.

Construction Companies’ Sales and Completion Plans Disrupted

According to the institute’s review of Seoul’s housing supply from 1990 to the present using real estate R114 data, the supply has never fallen to the 10,000-unit level in the past 34 years. Even right after the foreign exchange crisis, in 1997 (59,472 units) and 1998 (57,270 units), the supply exceeded 50,000 units. After the financial crisis, in 2009 (29,881 units), nearly 30,000 units were supplied.

Kang Min-seok, head of the real estate team at KB Financial Group Management Research Institute, analyzed, "The cumulative result is due to construction companies being unable to proceed with sales as planned and delays in completion, caused by the impact of reconstruction and redevelopment regulations during the previous administration, along with significant increases in construction costs and interest rates."

The housing supply in the Seoul metropolitan area is also expected to decrease. The total expected supply for Seoul, Incheon, and Gyeonggi Province combined is 150,628 units, which is 21.1% lower than the five-year average of 187,859 units.

Poor Economy: Even If Jeonse Rents Rise, Sale Prices Fall

On the 14th, in a real estate-dense shopping area in Songpa-gu, Seoul, where the decline in real estate prices and the transaction freeze phenomenon continue, apartment listings with market prices are posted. Photo by Kang Jin-hyung aymsdream@

When housing supply decreases, the general market ripple effect is that jeonse (long-term deposit rental) prices rise and sale prices follow suit. However, when factors causing sale price declines are scattered like landmines, as is the case now, this is an exception. Jeonse prices are rising slightly but are not influencing the downward trend in sale prices.

According to the housing price trends released by the KB Real Estate Big Data Center, nationwide apartment sale prices in January fell by 0.16% compared to December last year. In Seoul, the apartment sale price decline rate (-0.19%) was greater than the national average. This was true across both Gangnam (11 districts, -0.19%) and Gangbuk (14 districts, -0.29%).

In the same month, Seoul’s sale price outlook index was only 80. More forecasts predicted a decline for four consecutive months ahead. The price outlook index is based on a survey of about 6,000 brokerage offices nationwide. An index below 100 indicates a higher proportion of decline forecasts.

On the other hand, nationwide apartment jeonse prices rose by 0.14%. Seoul apartment jeonse prices recorded an even higher increase of 0.45%.

Kang said, "In the early 2010s, when the term ‘house poor’ was first coined and the real estate market was in a dark period, jeonse prices were closer to sale prices than now, and in some cases, jeonse prices were even higher than sale prices. The fact that jeonse prices are rising but sale prices are not rising together means the market situation is not good."

Government: "Will Supply Long-term Rental Housing"

Minister of Land, Infrastructure and Transport Park Sang-woo is announcing the major policy plans related to the transportation sector reported at the "Public Livelihood Discussion with the People" held at the Government Seoul Office in Jongno-gu, Seoul on the 25th. Photo by Jo Yong-jun jun21@

However, since the government is determined to curb the rise in jeonse prices, the pressure for sale prices to rise due to increasing jeonse prices may also become difficult in the future.

On the 5th, Park Sang-woo, Minister of Land, Infrastructure and Transport, said at a press briefing, "Currently, about 55% of people live in their own homes, and the rest live in jeonse or monthly rent. It is true that living in monthly rent feels very unstable or unsatisfactory housing. Jeonse prices have risen a lot, making it difficult to prepare jeonse deposits when getting married, and it’s almost like living on monthly rent from a bank’s perspective."

He added, "We need to change the housing paradigm from unstable jeonse to stable long-term rental. This can also reduce the risk of gap investment caused by jeonse, so we are preparing systems to supply a large amount of quality long-term rental housing."

Regarding measures to revitalize long-term rental housing, Minister Park said, "I think it is enough for the government to ‘no touch’ (not intervene) in the market. Not supporting or interfering is the best approach." He said, "If individual companies have land and build facilities similar to silver towns, for example, I think there will be high demand for long-term rental housing."

He continued, "If the government supports, it controls rent increases, and such a market loses business viability. We need to create a path for various housing to be supplied through purely private rentals."