Apartment Occupancy Outlook Cools Amid October 15 Measures... "Balloon Effect" Seen in Parts of Gyeonggi [Real Estate AtoZ]

Occupancy Outlook Declines in Seoul and Incheon
Gyeonggi Province Sees Slight Increase
"Balloon Effect" in Non-Regulated Areas
Nationwide Apartment Occupancy Rate at 65.9% in November
Up 1.9 Percentage Points from Previous Month

Apartment complex view in Seongdong-gu, Seoul. Photo by Yonhap News Agency

The impact of the October 15 measures continues to be felt, leading to a decline in this month's nationwide apartment occupancy outlook index. The drop in the index was particularly pronounced in the Seoul metropolitan area, especially in Seoul and Incheon. However, Gyeonggi Province saw a slight increase in its index, attributed to the so-called "balloon effect," where demand shifts to non-regulated areas.

The Housing Industry Research Institute (HIRI) announced on the 11th that, based on a survey of housing businesses, the nationwide apartment occupancy outlook index for December was 75.5, down 4.3 points from the previous month. This index predicts whether buyers who have acquired apartments will be able to pay the final balance and move in as scheduled. A reading above 100 indicates that more respondents have a positive outlook on the occupancy market, while a reading below 100 indicates the opposite.

In the Seoul metropolitan area, the index dropped by 6.7 points to 68.9, a larger decline than the nationwide average. Seoul recorded a decrease of 8.6 points to 76.6, and Incheon saw a drop of 13.0 points to 59.0. In contrast, Gyeonggi Province posted a slight increase of 1.3 points to 70.9.

HIRI explained, "The outlook for apartment occupancy in the metropolitan area has declined due to the strong lending regulations implemented as part of the October 15 measures." The institute also noted, "Despite increased transaction volumes in non-metropolitan areas, the outlook for occupancy has also declined there due to worsening lending conditions at commercial banks and a continued backlog of unsold units."

HIRI further stated, "In the metropolitan area, the October 15 measures have resulted in a balloon effect, with demand for new apartments in regulated and speculative zones (12 cities and counties in Seoul and Gyeonggi Province) shifting to non-regulated areas, which explains the slight increase in Gyeonggi Province. In Incheon, although transaction volumes and prices have risen in areas adjacent to Seoul such as Bupyeong, new supply has been concentrated in districts like Seo-gu and Yeonsu-gu, which have relatively less accessibility to Seoul, leading to a decline in occupancy outlook."

Among major cities, only Ulsan saw a significant rise, with its index jumping 33.4 points to 100.0. This was attributed to a combination of factors, including improved corporate performance, wage increases, and stronger local consumer sentiment, all positively impacting the housing market. Gwangju posted a decrease of 21.2 points to 53.8. Daegu, Busan, and Daejeon also saw declines of 12.8 points, 8.8 points, and 8.4 points, respectively.

Among provinces, North Chungcheong Province increased by 8.9 points to 71.4, and South Gyeongsang Province rose by 7.2 points to 100.0. North Jeolla Province and South Jeolla Province remained flat. In contrast, South Chungcheong Province dropped by 24.3 points to 66.6, and Gangwon Province fell by 12.5 points to 62.5. North Gyeongsang Province and Jeju Island also saw declines of 11.6 points and 1.7 points, respectively.

HIRI commented, "Last month, North Chungcheong Province had one of the lowest occupancy outlooks nationwide, but the outlook has improved due to the base effect and new supply centered around Heungdeok-gu in Cheongju, where housing prices are rising. In South Gyeongsang Province, the clear housing demand in Jinju and Changwon, driven by the robust shipbuilding and defense industries, appears to have led to an improved occupancy outlook."

HIRI also pointed out that restrictions on securing final balance payments are creating a situation that requires additional measures to ease the burden. The institute stated, "In the metropolitan area, when large apartment complexes are occupied, about 20% of total units typically enter the rental market. However, in large apartment complexes in Seoul and Gwangmyeong that are about to be occupied, rental listings account for only 2% of total units. This is interpreted as a result of the 'actual demand occupancy requirement' under the land transaction permit system and the restriction on using rental deposits to pay the final balance."

The institute added, "Furthermore, the overall lending cap has made it even more difficult to secure final balance loans, significantly increasing the burden of occupancy. With both rental and loan-based payment routes restricted, occupancy conditions are deteriorating, making it necessary to implement additional measures to alleviate the burden."

Meanwhile, last month's nationwide apartment occupancy rate was 65.9%, up 1.9 percentage points from the previous month. The main reasons for non-occupancy were inability to secure final balance loans (30.4%), delays in selling existing homes (30.4%), inability to secure tenants (21.7%), and delays in selling pre-sale rights (8.7%), in that order.

By region, the occupancy rate in the metropolitan area was 81.4%, down 4.5 percentage points. Major cities posted 58.2%, down 1.7 percentage points. Due to the actual demand occupancy requirement and restrictions on final balance loans, Seoul's rate fell by 5.4 points to 86.8%, while Incheon and Gyeonggi Province dropped by 4.1 points to 78.7%. In contrast, other regions saw an increase of 6.9 points to 65.8%.