Apartment Occupancy Outlook Freezes Under Regulations... Partial Balloon Effect Seen in Daegu and Busan [Real Estate AtoZ]

Sharp Decline Across the Entire Seoul Metropolitan Area... Gyeonggi Down 24.5 Points
"Overall Housing Transaction Conditions in the Metropolitan Area Further Contracted"
Daegu and Busan Rise... "Balloon Effect Partially Observed"

The nationwide apartment occupancy outlook index declined this month. In particular, the index for the Seoul metropolitan area dropped significantly, with the spread of negative sentiment attributed to the October 15 measures.

The Housing Industry Research Institute (hereafter referred to as HIRI) announced on November 11 that, based on a survey of housing businesses, the nationwide apartment occupancy outlook index for November was calculated at 79.8, down 7.9 points from the previous month.

This index is an indicator that predicts whether people who have purchased apartments will be able to pay the remaining balance and move in as scheduled. A value above 100 means that more respondents have a positive outlook for the occupancy market, while a value below 100 indicates the opposite.

The index fell sharply across the entire Seoul metropolitan area. Seoul recorded 85.2, down 14.8 points; Incheon dropped 12.0 points to 72.0; and Gyeonggi Province fell 24.5 points to 69.6.

HIRI explained, "The larger drop in the metropolitan area was due to the significant expansion of adjustment target areas and speculative overheating districts to cover all of Seoul and 12 cities and counties in Gyeonggi Province." They added, "This is interpreted as a result of further contraction in the overall housing transaction environment in the metropolitan area."

Among major cities, Daegu rose by 5.9 points to 80.9, and Busan increased by 4.6 points to 88.8. In contrast, Ulsan fell by 21.6 points to 66.6, and Sejong dropped by 16.7 points to 91.6.

HIRI stated, "In Daegu, the approval of new housing construction projects was completely suspended in 2023, leading to a decrease in unsold units for four consecutive months after completion. In Busan, interest in the new housing market is rising as new supply expands, especially in the highly sought-after Dongnae District." They continued, "In both regions, increases in housing prices and transaction volumes have been observed in core areas, suggesting that these areas are benefiting to some extent from the so-called balloon effect caused by the metropolitan area regulations."

The institute also noted, "In the case of Sejong, where the occupancy outlook dropped sharply, a large portion of the population consists of people who relocated from the metropolitan area and maintain their primary living base there. As a result, the region is particularly sensitive to regulations on multiple home ownership and the trend of preferring to own a single valuable property. Concerns over regulatory impacts have therefore played a relatively large role."

Among provinces, South Gyeongsang Province rose by 7.1 points to 92.8, and North Jeolla Province increased by 5.7 points to 87.5. North Chungcheong Province dropped by 26.3 points to 62.5, while Jeju, Gangwon, and South Jeolla Provinces fell by 15.0 points, 12.5 points, and 11.1 points, respectively.

HIRI explained, "Although the provinces are outside the direct scope of the regulations, there are concerns that expanded tax burdens on multiple homeowners may dampen housing investment, especially in regions like Jeju, Gangwon, and South Jeolla, where industrial bases are weak and demand from non-residents is high."

Meanwhile, last month’s nationwide apartment occupancy rate was confirmed at 64.0%, down 7.2 percentage points from the previous month. The rate in the metropolitan area rose by 3.0 percentage points, while the five major metropolitan cities dropped by 7.5 percentage points, and other regions fell by 10.7 percentage points. However, the increase in the metropolitan area reflects occupancy situations before the implementation of the October 15 measures, so once the regulatory effects take full hold, the occupancy rate in the metropolitan area is also likely to decline.

The main reasons for non-occupancy were delays in selling existing homes (40.0%), failure to secure final balance loans (30.0%), and inability to secure tenants (20.0%). HIRI added, "Under the October 15 measures, it is impossible to sell a home with tenants in designated land transaction permit zones, and only genuine end-users can move in. Both interim and final payments are subject to the loan-to-value (LTV) ratio limit, so the number of unoccupied units may increase further in the future."