[3 Real Estate Experts] "No House Price Increase This Year... Quick Sale and Auction Transactions Recommended"

In-depth Interview with 3 Real Estate Experts
"Market Uncertainty High. Mini Cycles Expected"
"Focus on Low-Priced Properties"
"Partial Recovery in Sales Prices Expected Next Year"

On the 14th of last month, apartment listings with prices were posted in a real estate-dense shopping area in Songpa-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

The volume of apartment transactions in Seoul has increased. According to the Seoul Real Estate Information Plaza, the number of apartment transactions in Seoul in March was 3,897. After plummeting below 2,000 at the end of last year, it has roughly doubled. The transaction volume for April, as of the 7th, is 2,679. Although it has decreased compared to the previous month, it is better than the figures for January and February this year. In the market, there are observations that the market may have entered a recovery phase due to an increase in buyers, while some analyses suggest it is a temporary phenomenon caused by policies such as the special newborn loan. The government’s real estate policies, which were released before the April 10 general election, have been shrouded in uncertainty following the ruling party’s defeat.

In this situation, Asia Economy met with Park Wongap, Senior Specialist at KB Kookmin Bank, Ham Youngjin, Head of Real Estate Research Lab at Woori Bank, and Kim Hyoseon, Senior Specialist at NH Nonghyup Bank, to ask about their outlook for the second half of this year. They all said, "Market uncertainty is higher than ever," and advised, "It is advisable to focus on transactions involving urgent sales, auctions, and low-priced properties."

Sales: "This year will be difficult"... Partial recovery or downward stabilization next year

The common view among the three experts was that "a recovery in the sales market in the second half of this year is difficult." Park said, "The most important factor when predicting housing prices is the 'tentative apartment actual transaction price index.'" He added, "Seoul’s tentative index in March fell by 0.27% compared to the previous month, which is evidence of weakness. If the final index shows a downward trend, the actual transaction prices will only have experienced a brief rise in January and February." He predicted a 'mini cycle' of slight rises and falls due to high interest rates, high sales prices, and minimal increases in money supply. Park emphasized, "Even if you think of buying at the dip during market fluctuations, it can still be a peak. Timing is meaningless; price is what matters. Look at auctions or urgent sales." He suggested approaching properties that have fallen 15-20% in Gangnam compared to the peak and 25-30% in non-Gangnam areas. However, Kim predicted, "Next year, due to supply instability and rising pre-sale prices, Seoul’s sales prices will show some recovery."

Ham also said, "Currently, the market is moving only based on actual demand, so it will fluctuate within a 'box range'." He added, "Even within Seoul, Gangnam is recovering, but the outskirts remain cold, and this mixed trend makes people hesitant to purchase homes." He forecasted, "Due to supply shortages, Seoul’s apartment prices will rise slightly next year, but the ultra-low interest rate period of the past will not return. Since people have become accustomed to medium interest rates, sales prices will only see weak increases."

Kim predicted, "Seoul’s transaction volume in April will decrease again," expecting downward stabilization in the second half of the year. He said this trend could continue into next year. He pointed out, "Currently, the gap between the base interest rate and bank loan interest rates is the narrowest ever." He explained, "Even if the Bank of Korea lowers the base rate, if the housing market overheats, banks will raise the additional interest rate, so the current loan interest rate gap will remain minimal." This means that even if the base rate drops, it cannot be guaranteed that the housing market will benefit significantly from the rate cut. Kim advised, "Apartments priced below 1.5 billion KRW, which are heavily influenced by loan interest rates and the Debt Service Ratio (DSR), have limited potential for price increases, so caution is needed unless the property is low-priced."

Jeonse Prices Will Continue to Recover Until Next Year

All three agreed that jeonse (long-term lease) prices will steadily recover until next year. Kim said, "Loan interest rates have decreased compared to last year, and supply is insufficient, so jeonse prices are rising again." However, he noted, "Seoul’s jeonse demanders who prefer new buildings might move to Incheon or Gyeonggi Province, so Seoul’s jeonse prices will not show a sharp rise." He added, "In Seoul, supply is concentrated in Gangdong-gu until next year, so that area will have relatively low sales and jeonse prices for the time being."

Park said, "Jeonse prices are still low compared to their peak, so 'recovery' is a more appropriate term than 'increase.'" He explained, "First, the aftermath of jeonse fraud caused a surge in apartment jeonse demand; second, those waiting to buy are staying in the jeonse market; third, the number of move-in units is decreasing, so the jeonse rate will rise going forward." He predicted, "If jeonse prices rise, sales prices will also increase, and gap investment may become rampant."

Ham said, "The polarization between apartments and non-apartments in the jeonse market must be resolved first to stabilize jeonse prices." After last year’s jeonse fraud incident, there was a tendency to avoid multi-family and row houses, which strengthened the preference for apartments and pushed apartment jeonse prices higher. He said, "In this situation, jeonse tenants have no choice but to either take more loans from banks or pay monthly rent and live in multi-family houses." He suggested, "Measures should be considered to stabilize jeonse prices by strengthening the safety net for multi-family jeonse or increasing rental housing."

Reconstruction: "First-generation new towns will proceed" "All remedies ineffective" "Consensus needed in the National Assembly"

The three experts had somewhat different views on reconstruction, a major supply policy in the metropolitan area. Ham said, "First-generation new towns are worth expecting profitability, especially for some complexes." The government plans to set the scale of leading districts in first-generation new towns at 5-10% of the housing stock by region this month. Ham analyzed, "If the plan proceeds as scheduled, these complexes will begin construction in 2027, with exemptions from safety inspections, legal maximum floor area ratio increased to 150%, and possible zoning changes, so some complexes can expect profitability."

On the other hand, Park said, "All remedies are ineffective," and "No matter how much regulations are eased, only Gangnam will benefit; other areas will not." He cited construction costs as the biggest problem. He explained, "Currently, reconstruction construction costs have soared above 9 million KRW per pyeong, making profitability impossible. Additionally, relocation costs have increased, and the reconstruction excess profit recovery tax is a heavy burden." He predicted, "The first-generation new town reconstruction projects are also intertwined with the excess profit recovery tax issue, making them difficult."

Kim emphasized, "From 2026, the supply of move-in units will become insufficient, mainly in Seoul." He said, "Supply shortage is a concern shared by both ruling and opposition parties, so legislation providing incentives for reconstruction projects should find an acceptable compromise in the National Assembly." He also pointed out that reducing labor costs is key to lowering soaring construction costs. He said, "The rise in raw material prices has recently slowed significantly, but construction costs remain high due to labor costs. The 52-hour workweek has extended construction periods, increasing labor costs, which is a challenge on-site." He proposed that the government or National Assembly should allow flexible working hours at construction sites to shorten construction periods.

Image sketch related to Jamsil 5 Complex Apartment. Photo by Jo Yongjun jun21@