[Why&Next] Loan Denied, Contract Canceled... "Apartment Transactions to Decline Further Next Year"

100 Days Since Stress DSR Phase 2 Implementation
Seoul Apartment Transactions Halved in One Month
90,000 Listings, Highest Since November 2021
Martial Law, Impeachment Chaos, "Adjustment Period Prolonged"

As the second phase of the stress Debt Service Ratio (DSR) regulation (effective September 1) marks 100 days, apartment transaction volumes in Seoul and the greater metropolitan area have entered a downward trend. Prices have even fallen in the outskirts of the metropolitan area. With high interest rates and reduced loan limits, buyers are running out of funds and giving up on purchasing their own homes. Experts predict that this transaction freeze may continue for some time due to recent political turmoil such as martial law and impeachment, as well as the planned implementation of the third phase of DSR in the second half of next year.

100 Days of DSR Phase 2 ‘Transaction Freeze’

According to the Seoul Real Estate Information Plaza on the 9th, apartment transaction volume in Seoul for September (as of that day) was recorded at 3,126 cases. This is a halving compared to one month earlier (6,490 cases). Compared to this year’s peak (9,206 cases in July), it dropped sharply by 66% (6,080 cases). This figure remained at a similar level with 3,714 cases in October but showed a declining trend to 2,348 cases last month.

The transaction cliff began in earnest with the start of the stress DSR phase 2 measures in September. Stress DSR is a regulation that reduces loan limits by adding a stress interest rate to the actual mortgage loan interest rate. With the implementation of phase 2, the weight applied to the basic stress interest rate (1.5%) was raised from 25% to 50%, and the scope was expanded to include bank credit loans and second-tier financial institution mortgage loans. Kim Hyoseon, Senior Real Estate Specialist at NH Nonghyup Bank, explained, "Since September, strong loan regulations have started, causing buyer sentiment to shrink and a wait-and-see mood to form."

A real estate agent in Mokdong New Town, Seoul, said, "In early September, a contract for a 20-pyeong (approximately 66 sqm) property, which already had a deposit of several tens of millions of won, was canceled because the loan was not approved, and there has been no transaction since then."

Listings are piling up. According to the real estate information company ‘Asil,’ the number of apartment listings in Seoul reached 90,000 units as of the end of last month. This is the highest number since Asil began compiling statistics in November 2021. A representative from Y Real Estate Agency in Mokdong, Yangcheon-gu, said, "With prices still high and loan regulations in place, transactions have completely ‘stopped’ since September. There are no buyers, but listings keep pouring out."

The rate of house price increases is also slowing. According to the Korea Real Estate Board, the apartment price increase rate in Seoul has decreased for four consecutive weeks since the second week of October (0.11%) with rates of 0.09%, 0.08%, 0.07%, and 0.06%. The downward trend continued to 0.04% in the last week of last month. This is a sharp drop compared to 0.32% in the second week of August, just before the phase 2 measures were implemented. The Seoul housing price index also fell by 0.21 percentage points from 0.54% in September to 0.33% in October.

Yonhap News

Price Decline Also Emerging

In the outskirts of the metropolitan area, a transaction freeze has led to a price decline. A 112㎡ (34-pyeong) unit in ‘Anseong Ayang City Pradium’ in Oksan-dong, Anseong-si, Gyeonggi Province, was traded for 375 million won (21st floor) on the 21st of last month. This is more than 20 million won lower than the price in early September (397.5 million won). A 124㎡ (37-pyeong) unit in ‘Shinan Insville Astro’ in Wirye New Town, Hanam-si, Gyeonggi Province, was traded for 1.56 billion won (14th floor) in October, 40 million won lower than in July (1.6 billion won, 12th floor). In Anseong, the price change rate fluctuated between -0.05% and 0.01% in October and November but dropped sharply to -0.09% in the first week of this month. Hanam also shifted from a range of 0.01% to 0.07% in October and November to a decline of -0.02% in the first week of this month.

From July next year, the third phase of DSR, which strengthens regulations further, is scheduled to be implemented. The reflection rate of the basic stress interest rate will increase from 50% to 100%, and the scope will expand to include not only bank loans but also second-tier financial institution mortgage loans, credit loans, and other loans. Park Wongap, Senior Real Estate Specialist at Kookmin Bank, said, "In the metropolitan area, loan regulations are scarier than interest rates. Next year, as interest rate cuts and loan regulations play a seesaw game, the adjustment period is expected to be longer."

Political turmoil is also a negative factor. Senior Specialist Kim said, "The real estate market tends to completely stop transactions when uncertainty is strong. With increased uncertainty due to political issues next year, transactions are expected to decrease further, and psychologically, the tendency to wait and see will deepen."