Pre-sale Outlook Cools Due to October 15 Measures: "Possible Tax Reforms Further Dampening Sentiment" [Real Estate AtoZ]

Seoul Apartment Pre-sale Outlook Drops by 26.3 Points
"Negative Impact on Pre-sale Market Outlook Expected for the Time Being"
Non-metropolitan Areas Also Fall by 17.7 Points... Only North Gyeongsang Rises

There are forecasts that the nationwide apartment pre-sale market will worsen this month. Analysts point to the negative impact of the October 15 real estate measures as a key factor.

The Housing Industry Research Institute announced on the 6th that, based on a survey of housing businesses, this month’s nationwide apartment pre-sale outlook index was recorded at 72.1, a drop of 19.4 points from the previous month. The index for the Seoul metropolitan area fell by 26.9 points to 73.3. Specifically, Seoul dropped by 26.3 points to 84.8, Gyeonggi Province by 27.4 points to 69.7, and Incheon by 27.1 points to 65.2.

This index is a quantified indicator created by the Housing Industry Research Institute, based on surveys of housing businesses regarding the conditions of complexes that are about to be or are currently being pre-sold. It ranges from 0.0 to 200.0. If the index exceeds 100.0, it means the pre-sale outlook is positive; if it is below 100.0, the outlook is negative.

The October 15 real estate measures are considered to have dealt a direct blow to the index. The Housing Industry Research Institute explained, “Regulatory areas were greatly expanded, such as designating parts of Seoul and Gyeonggi Province as speculative overheated districts, adjustment target areas, and land transaction permission zones. At the same time, financial regulations were also significantly strengthened, including tightening the loan-to-value (LTV) ratio, reflecting the interest repayment portion of jeonse loans in the debt service ratio (DSR), and raising the stress interest rate when calculating the DSR. These are seen as the effects of implementing strong regulations to curb housing demand.”

The institute added, “In addition to these extremely strong regulations, the possibility of tax reforms such as changes to holding taxes is being discussed, which is dampening apartment buying sentiment throughout the Seoul metropolitan area, including Seoul itself. As a result, buying activity is decreasing and the market is shrinking in the short term, which is expected to negatively affect the pre-sale market outlook for the time being.”

For regions outside the metropolitan area, the outlook index was forecast to drop by 17.7 points to 71.9. Ulsan was expected to fall by 35.7 points, Gangwon by 34.4 points, North Chungcheong by 33.3 points, and South Jeolla by 27.8 points. However, North Gyeongsang was analyzed to have risen by 8.3 points.

The Housing Industry Research Institute stated, “Although the decline is smaller than in the metropolitan area, which was directly affected by the regulations, the strong regulatory spillover from the metropolitan area and the accelerating trend of concentrating on a single high-value property are raising concerns about increased sales of non-metropolitan homes by multi-homeowners, which is leading to a negative outlook.”

Meanwhile, this month’s pre-sale price outlook index fell by 6.2 points to 100.0. The institute commented, “Due to weakened demand from loan regulations and a decrease in new housing construction volume, demand for building materials and labor is expected to fall, which should ease the construction cost burden.”

The pre-sale volume outlook index dropped by 9.7 points from the previous month to 79.7, while the unsold volume outlook index rose by 8.9 points to 98.5.