"Seoul Housing Prices Rose, but Is Homeownership Getting Faster?... Cause of Polarization" [Real Estate AtoZ]

Seoul Average House Price Increased but PIR Decreased from 12.6 to 11.5
Median Apartment Price in Seoul Falls... "Polarization of Apartment Prices within Seoul"

[Image source=Yonhap News]

"Although Seoul apartment prices rose in the second quarter of this year, the time required to own a home shortened by 1.1 years compared to the first quarter."

As the polarization of housing prices in Seoul deepened this year, an analysis showed that the median price of Seoul apartments actually declined. The median price is used as a benchmark to measure the time needed to purchase a home, and as this price fell, an optical illusion appeared where the homeownership period seemed to shorten. This is pointed out as a clear example of the intensifying polarization trend in Seoul's housing market.

According to KB Real Estate Data Hub on the 21st, the Price-to-Income Ratio (PIR) of housing prices to household income in Seoul in the second quarter of this year was 11.5, down from 12.6 in the previous quarter. PIR shows how many times the median apartment price in a certain area is compared to the median household income of residents in that area. A PIR of 11.5 in Seoul means that it would take 11.5 years (about 11 years and 6 months) to buy an apartment if one saved all their income without spending a single penny.

In the second quarter of this year, Seoul's median household income rose, but the median apartment price fell. The median apartment price decreased from 975 million KRW in the first quarter to 900 million KRW in the second quarter. Meanwhile, the median household income increased from 77.19 million KRW to 78.12 million KRW during the same period.

Park Won-gap, Senior Real Estate Specialist at KB Kookmin Bank, said, "Although Seoul housing prices rose in the second quarter of this year, the decline in the median price reflects a facet of the polarization of housing prices within Seoul." He explained, "Seoul housing prices rose thanks to buying demand in major areas like Gangnam, but the prices of apartments for low-income groups within Seoul fell, causing the median price to drop." In other words, although Seoul housing prices rose significantly this year, polarization intensified, and the median price actually declined.

The downward trend in the median price of Seoul apartments is also confirmed by the burden of loans. According to the Korea Housing Finance Corporation (HF), Seoul's Housing Purchase Burden Index recorded 147.9 in the second quarter of this year. It was 151.0 in the first quarter of this year and 165.2 in the second quarter of last year. This index shows how much the median-income household in the area spends on principal and interest repayment of mortgage loans when buying a median-priced house in that area, assuming an appropriate burden amount of about 25% of income. A value of 147.9 means that if the monthly income is 3 million KRW, about 1.11 million KRW (147.9% of 750,000 KRW) is spent on loan principal and interest repayment.

The gap between the average price and the median price of Seoul apartments is also gradually widening. According to the Seoul Real Estate Information Plaza, the average transaction price of Seoul apartments in the second quarter of this year ranged from 1.14337 billion KRW to 1.24854 billion KRW. Monthly figures were 1.14337 billion KRW in April, 1.20118 billion KRW in May, and 1.24854 billion KRW in June. The average price range in the previous quarter was 1.0722 billion KRW to 1.11035 billion KRW, with monthly figures of 1.0722 billion KRW in January, 1.09371 billion KRW in February, and 1.11035 billion KRW in March.

Experts pointed out that as the polarization of Seoul housing prices intensifies, the representativeness of the median price has significantly decreased. Kwon Young-sun, team leader of the Real Estate Investment Advisory Center at Shinhan Bank, said, "Although Seoul's PIR came out to 11.5, it is quite different to use this as a basis to look at housing prices in major areas like Gangnam." He added, "PIR is based on the median value, but for areas like Gangnam, it is necessary to look at the price levels of ultra-high-end homes. However, there are no separate statistics for ultra-high-end homes, so actual transaction prices or market prices must be examined separately."

According to the Ministry of Land, Infrastructure and Transport's actual transaction price system, the highest-priced home transaction in the second quarter of this year (based on 84㎡ exclusive area) was Acro River Park in Banpo-dong, Seocho-gu. It was sold for 5 billion KRW on June 29. The Hillstate in Hoegi-dong, Dongdaemun-gu, which is close to the median price, was sold for 900 million KRW on the same day. The apartment with the lowest transaction price on that day was Mirabo (Seongrim) in Sanggye-dong, Nowon-gu, which welcomed a new owner at 495 million KRW.