Provincial Sales Prices Expected to Remain Stable
Jeonse Prices Forecast to Rise by 1%
Due to the base rate cuts this year and supply concerns stemming from the construction industry downturn, it is forecasted that housing prices in the Seoul metropolitan area will rise by around 2%.
The Korea Construction Policy Institute recently released a report on this year’s construction and real estate market outlook, stating, "The downturn in the real estate construction market will affect the recovery of housing supply," and made this prediction. Although the Bank of Korea projected an economic growth rate of 1.9% for this year, construction investment is expected to decrease by 0.7% compared to the previous year.
The institute explained, "(This forecast) generally means that while the economy will show growth, the construction industry will remain sluggish," adding, "If the recovery of the construction market is delayed, housing supply will be slow, increasing upward pressure on prices."
High interest rates and rising construction costs are also expected to drive up housing prices. Last year, housing permits decreased by 22.6% compared to the previous year. This is the background for the anticipated realization of housing supply shortages. The institute forecasted, "The construction industry is taking a conservative stance on new project orders due to high interest rates and rising construction costs," and "a quick recovery in housing supply seems difficult."
In this situation, expectations for interest rate cuts are growing, and housing demand in the metropolitan area is predicted to increase instead. The institute explained, "There is a possibility that mortgage loan interest rates will gradually decrease starting from the first half of this year," and "demand is likely to increase mainly among actual buyers who have less repayment burden."
From a policy perspective, it pointed out that there are no suitable measures to suppress housing supply that will materialize from this year. The institute evaluated, "Housing supply through Greenbelt release and reconstruction fast-track policies can be effective more in the long term than in the short term," and "it should be considered that these policies are likely to have a negative impact on housing supply outlook."
Considering the economic growth rate and the effects of interest rates comprehensively, the institute predicted that housing prices in the metropolitan area will rise by around 1-2% this year. It diagnosed, "Housing prices in provincial areas are expected to remain stable, and jeonse prices are expected to rise by about 1%," adding, "This year’s housing market will be influenced by a combination of factors including an increase in unsold houses and concerns over housing supply shortages due to real estate project financing (PF) failures."
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