Jeonse Prices Rise Due to Decline in New Housing Supply and Restrictions on Gap Investment
Factors Driving Housing Price Increases: Increased Liquidity, Falling Loan Interest Rates, and Housing Supply Shortages
It is forecasted that while housing prices in Seoul will rise by 4.2% next year, jeonse (long-term lease) prices will increase by an even higher 4.7%. The decrease in the number of newly available homes, along with restrictions on gap investment (purchasing a home with a jeonse tenant in place), is expected to drive up jeonse prices. As it becomes increasingly difficult to purchase a home, the rising jeonse prices will further increase the housing burden for ordinary citizens.
The Housing Industry Research Institute (HIRI) held a seminar titled "2026 Housing Market Outlook and Policy Direction" at the Korean Chamber of Commerce and Industry in Jung-gu, Seoul, on December 23. HIRI projected that the jeonse price increase rate in Seoul next year will be 4.7%, which is 1.7 percentage points higher than this year. For the greater Seoul metropolitan area and nationwide, the institute forecasted increases of 3.8% and 2.8%, respectively, which are 2.0 and 1.8 percentage points higher than this year. In the provinces, the jeonse price increase rate is also expected to rise by 1.5 percentage points to 1.7%.
The decrease in the number of new homes and the implementation of the October 15 regulation, which designated all of Seoul as a Land Transaction Permission Zone (LTPZ), have resulted in an obligation for actual residence when purchasing an apartment. This has led to a rise in jeonse prices.
The upward trend in monthly rental prices is also expected to continue. HIRI explained, "Due to the shortage of new housing supply and the accelerating shift from jeonse to monthly rent, the upward trend in monthly rent in major metropolitan areas is expected to persist. In particular, the pressure for monthly rent increases will be greater in the greater Seoul area, where the shortage of new housing and the shift to monthly rent are more pronounced."
The projected increase in Seoul housing prices next year is 4.2%. Although this is a 2.4 percentage point drop compared to this year’s annual increase of 6.6%, HIRI still expects Seoul home prices to rise by more than 4% next year. Housing prices in the greater Seoul area and nationwide are expected to increase by 2.5% and 1.3%, respectively, while in the provinces, prices are projected to rise by 0.3%, reversing this year’s 0.7% decline.
The factors driving next year’s housing price increases include increased liquidity, falling loan interest rates, and a shortage of housing supply. HIRI stated, "Over the past 10 years, the surge in liquidity far exceeding the nominal growth rate has heightened upward pressure on asset prices. The decline in loan interest rates due to the U.S. base rate cuts that began in September last year, and the cumulative shortage of about 600,000 housing starts over the past four years, mean that unless there is a sudden spike in interest rates or a sharp economic downturn, the upward trend seen this year is likely to continue into next year."
Although next year’s housing supply-measured by permits, housing starts, and pre-sales-is estimated to increase compared to this year, it still falls far short of demand. Next year, housing permits are projected at 400,000 units, up by 14,000 units from this year. Housing starts are expected to reach 320,000 units, an increase of 42,000 units year-on-year, and pre-sales are expected to rise by 10,000 units to 240,000 units. However, completions are expected to decrease by 92,000 units to 250,000 units.
HIRI explained, "Although public sector entities such as Korea Land and Housing Corporation (LH) are increasing supply, it is still significantly below the annual demand of 450,000 to 500,000 units. While housing starts and pre-sales may increase somewhat next year due to improved market sentiment, the number of homes available for occupancy will likely decrease further compared to this year because of the decline in housing starts two to three years ago."
In the greater Seoul area, an annual supply of 250,000 units is needed, but shortages are also expected. Next year, housing permits in the metropolitan area are projected at 220,000 units, up by 20,000 units from this year, and housing starts are expected to increase by 40,000 units to 210,000 units. Due to the decline in housing starts two to three years ago, completions next year are expected to decrease by 30,000 units to 120,000 units, and pre-sales are expected to decrease by 5,000 units to 125,000 units.
Next year’s housing transaction volume is estimated at 650,000 units, down from 687,000 units this year. This represents 3.2% of the total housing stock. Considering that 4-5% of the housing stock is typically transacted in normal years, this year and next year’s transaction volumes are only about 70% of normal levels.
HIRI emphasized that to stabilize the market, it is necessary to manage economic indicators such as liquidity, interest rates, and exchange rates, address the decline in rental supply, and pursue measures to dramatically expand housing supply. For rental homes, the institute suggested delaying occupancy until at least two years after the minimum lease period, easing requirements for interim and final payment loans, and promoting small-scale redevelopment projects.
HIRI also proposed a "Special Housing Supply Policy Area" system, which would centralize the authority to approve housing construction projects above a certain size under the Minister of Land, Infrastructure and Transport, to enable rapid housing supply. HIRI added, "The key to rapid groundbreaking and pre-sales on already secured land is to drastically shorten the permitting process. To prevent delays in project approvals or groundbreaking due to even minor complaints before and after next year’s local elections, it is desirable to quickly introduce and implement the Special Housing Supply Policy Area system."
However, there was also an opinion that supplying housing through urban renewal projects is not a desirable means of curbing housing prices in the short term. HIRI President Seo Jongdae stated, "Urban renewal is based on owner-occupancy standards, so there is little additional supply. The amount of new supply resulting from recent reconstruction projects is only about 10%," he said.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
