[Column] Lifting of Toheoje and Bull Market, Seoul City's Denial of Reality

The real estate market is like a heavy stone that is difficult to stop once it starts rolling. This is because once the perception that the market has entered a rising or falling phase is ingrained in market participants, it is hard to reverse the mood. In a downturn, prices do not rise even if regulations are eased, and in an upturn, it is difficult to control prices despite various measures. The moment an uptrend is confirmed, not only demanders interested in investment but also the general public who had not been paying close attention to the real estate market jump in.

On the 12th of last month, Seoul City’s announcement of the lifting of the ‘Land Transaction Permission Zone’ opened the door to an uptrend. Gap investments in apartments in Jamsil, Samsung, Daechi, and Cheongdam-dong were allowed, causing asking prices to soar. Even outsiders who had been eyeing Seoul real estate investments joined in. Prices rose in Apgujeong and Banpo, which are higher-tier areas than Jamsil, Samsung, Daechi, and Cheongdam, as well as in lower-tier areas like Mapo and Seongdong. Jamsil, in particular, saw investment demand react sensitively. The sale price of the flagship complex in Jamsil, where the standard 84㎡ units were trading in the high 2 billion KRW range, is now approaching 3 billion KRW. There are also reports that the highest price of the Jamsil Rescence standard unit, which recorded a peak price in the mid-2.8 billion KRW range last October, has been renewed at 3.29 billion KRW.

Meanwhile, on the late afternoon of the 28th of last month, Seoul City released an explanatory document that seemed detached from this reality. The main point was that after the lifting of the Land Transaction Permission Zone, “although transaction volume increased, the average transaction price actually declined, and no rapid price surge was confirmed.” They added that the average apartment price per square meter for transactions two weeks before and after the lifting fell by 5%, from 31 million KRW to 29.55 million KRW. Despite the fact that the weekly increase rate of apartment prices in the Gangnam 3 districts (according to the Korea Real Estate Board) has been expanding since February, Seoul City cautioned against attributing significance by saying “these are not actual transaction prices.”

The short-term price surge immediately after the lifting was an expected outcome for everyone. In February, the number of apartment transactions in Seoul reached 3,232 (as of the 6th). Even though there is still about a month left for transaction reporting, this figure is close to 97% of January’s reported transactions (3,312). The expansion of buying sentiment is already spreading to non-Gangnam areas. To make matters worse, Seoul is facing a severe supply shortage. The planned supply volume for Seoul this year (21,660 households, according to Real Estate R114) is 9,783 households less than last year. Market participants during a housing price rise are very sensitive to price changes in higher-tier areas (according to the Korea Research Institute for Human Settlements’ ‘Behavior and Implications of Housing Market Participants in an Upturn’). At times like this, since supply reduction plays an important role in price increases, it is recommended to pre-check whether supply factors such as a decrease in listings are influencing the market.

The background to Seoul City’s explanation appears to be an attempt to lessen responsibility for not properly grasping market trends at the time of lifting the Land Transaction Permission Zone. There is also suspicion that this is intended to prevent criticism from being directed at Mayor Oh Se-hoon ahead of the early presidential election. Since the designation of the Land Transaction Permission Zone in June 2020, Seoul City has re-designated the zones annually, including last June. This year, the stance changed with the emphasis on ‘deregulation,’ which is interpreted as a move considering the presidential election. The stone has already started rolling. It is worth reflecting on whether the lifting of the Land Transaction Permission Zone was a policy that accurately understood the market context.