"Buyers Opt for Smaller Homes Amid Lending Limits... Sharp Rise in Small Apartment Transactions [Real Estate AtoZ]"

Share of Small Apartment Transactions in Seoul Hits 29-Month High
Buyers Lower Expectations Amid Financing Hurdles

The proportion of small-sized apartments in Seoul apartment transactions is rapidly increasing, reaching the highest level in 29 months. This trend is attributed to government lending restrictions, which have tightened the flow of funds and driven demand toward relatively inexpensive apartments.

According to the Ministry of Land, Infrastructure and Transport’s real transaction price disclosure system on September 19, apartments in Seoul with an exclusive area of 60 square meters or less accounted for 47.95% of all transactions last month. This figure represents a 6.45 percentage point increase from 41.50% the previous month. It is the highest proportion since March 2023, when it reached 49.52%.

Despite the government’s lending restrictions, home prices have not fallen, which has actually revived buying sentiment. According to the nationwide housing price trend survey by the Korea Real Estate Board, the Seoul apartment sales price index rose by 1.09% in July and 0.48% in August, indicating that apartment prices have continued to climb.

With the cap on mortgage loans in the Seoul metropolitan area set at 600 million won, demand has shifted to small-sized apartments, which are relatively more affordable compared to other sizes. The share of small apartment transactions began to rise after financial authorities implemented lending regulations in June. Before the regulations, the proportion was below 40%. Even as the total number of apartment transactions fell from 4,325 in July to 4,100 last month, small apartment transactions actually increased from 1,795 to 1,966 during the same period.

The trend of increased small apartment transactions following lending restrictions appears to be a consistent pattern. A similar phenomenon occurred in September last year when the second phase of the stress-based Debt Service Ratio (DSR) regulation was implemented. When a 0.75 percentage point additional interest rate was applied to bank mortgages, credit loans, and secondary financial institution mortgages under the second phase of the stress DSR, the proportion of small apartment transactions rose from 40.03% to 47.05% by December of the same year.

Experts predict that the high proportion of small apartment sales will continue for the time being. Kim Hyosun, Chief Real Estate Specialist at NH Nonghyup Bank, said, "As transaction prices in Seoul continue to rise, buyers have to either settle for a smaller area or move to the outskirts for the same amount of money. The weakening of purchasing power due to lending restrictions has greatly contributed to the increase in the proportion of small apartment transactions." She added, "Recently, there has been a strong tendency for buyers to remain in their preferred areas rather than relocate, so this trend is likely to persist for some time."