[Click e-Stock] "Seoul Apartment Prices Rise... Long-term Earnings Growth Expected for Housing Stocks"

On June 17, Hana Securities analyzed that "the rise in apartment prices in Seoul does not have a significant short-term impact on the fundamentals of housing stocks, but in the long term, it could lead to increased earnings."

On this day, Kim Seungjun, a researcher at Hana Securities, stated, "As apartment prices in Seoul are rising rapidly, interest in housing stocks is growing," and made this assessment.

Over the past week, the construction sector outperformed the KOSPI by 1.4 percentage points in terms of returns in the stock market. Institutional investors, pension funds, and foreign investors all made net purchases. Kim explained, "Stocks related to inter-Korean economic cooperation rose due to the easing of tensions with North Korea, such as the suspension of loudspeaker broadcasts and a friendly letter from Trump."

The nationwide sales supply-demand index rose for the second consecutive week to 93.8 (+0.50 percentage points). Nationwide apartment sale prices also increased for the second consecutive week (+0.03%), and jeonse prices rose as well (+0.01%). In the greater Seoul area, sale prices have risen for 16 consecutive weeks (+0.09%), and jeonse prices have increased for 17 consecutive weeks (+0.03%). In Seoul, sale prices have climbed for 21 consecutive weeks (+0.27%), and jeonse prices have risen for 18 consecutive weeks (+0.08%).

In particular, the pace of increase in Seoul is accelerating. Notably rapid increases are seen in Gangnam-gu (+0.51%), Songpa-gu (+0.70%), Seocho-gu (+0.45%), and Yongsan-gu (+0.43%), all of which are subject to land transaction permit regulations. Other districts with fast price growth include Seongdong-gu (+0.47%), Mapo-gu (+0.44%), Yangcheon-gu (+0.31%), Yeongdeungpo-gu (+0.22%), and Gangdong-gu (+0.50%). In Gyeonggi Province, Gwacheon (+0.35%) continues to see a rapid rise in sale prices, with Seongnam Bundang-gu (+0.39%) and Yongin Suji-gu (+0.24%) also showing increases.

Kim explained, "The reason why rising real estate prices in Seoul have a long-term impact on housing stock earnings is that there is potential for the price increase to spread to surrounding areas. For now, the greater Seoul area excluding Seoul proper, as well as regional areas, are places where project profitability depends on prices. If prices rise, more projects may be launched."

Regarding why the short-term impact is limited, he said, "Whether there is an increase in construction starts within Seoul depends more on physical time factors such as permits and relocation/demolition, rather than prices. About 70-80% of construction starts in Seoul are for reconstruction or redevelopment, and these urban renewal projects cannot begin construction immediately just because the business case improves due to higher prices."

Additionally, Kim noted, "If the rise in real estate prices spreads to the greater Seoul area and regional areas, increased supply and construction starts will lead to higher earnings for housing stocks. This could be a long-term investment point for buying housing stocks, but whether the price increases in areas outside Seoul is more important for actual fundamentals. The short-term rise in housing stock prices can be seen as a valuation increase that reflects the long-term outlook in advance."