Fewer Move-ins and Scarce Jeonse... Seoul Home Prices Rise for Second Straight Month in January

Seoul Home Prices Rise for Second Consecutive Month
New and Redevelopment Complexes Lead the Gains
Supply Shortages and Rental Market Instability as Key Drivers
Correction Phase Expected on Heavier Capital Gains Tax for Multiple-Home Owners

Data show that housing prices in Seoul, which had seen their rate of increase slow after the October 15 (10·15) measures that designated the entire city as a land transaction permit zone, have now expanded their gains for two consecutive months. Buyers who had taken a wait-and-see stance under the high-intensity regulations are turning back to purchases, driven by diminished expectations for supply measures and concerns over declining move-in volumes. However, as government pressure on multiple-home owners continues, some forecast that a correction phase will persist from February onward.

According to the monthly housing price trends for last month released by Korea Real Estate Board on the 19th, the average sales price growth rate for homes in Seoul (apartments, multi-family, and row houses) was 0.91%, up 0.11 percentage point from 0.80% in December last year. Following a 0.03 percentage point month-on-month increase in December last year, prices have now risen for two consecutive months.

View of city apartments seen from Namsan in Seoul, Yonhap News

By district, Songpa-gu (1.56%), Dongjak-gu (1.45%), Seongdong-gu (1.37%), Gangdong-gu (1.35%), Yongsan-gu (1.33%), and Yangcheon-gu (1.28%) recorded relatively high price growth rates in that order. Overall, continued price gains in large new complexes and in older complexes pursuing reconstruction led the overall rise in housing prices.

The buying sentiment that had been dampened by the high-intensity regulations appears to have partially revived due to concerns over reduced move-in volumes and weakening expectations for the government’s supply measures. According to Zigbang, the number of apartment move-ins in Seoul this year is projected to total only 16,412 units, a sharp 48% drop from last year’s 31,856 units. Although the government announced additional measures, following the September 7 (9·7) supply plan with the January 29 (1·29) measures last month as an alternative supply plan, many expect that, given the time required from groundbreaking to occupancy, it will be difficult to bring about meaningful additional supply within the next two to three years.

Instability in the rental market has also fueled the rise in housing prices. According to Asil, a real estate big data firm, the number of Jeonse rental apartment listings in Seoul stood at 21,785 as of January 31, down sharply from 28,441 in the same month a year earlier. Since the October 15 (10·15) measures effectively imposed a blanket restriction on gap investment and more landlords have been preemptively putting properties on the market in anticipation of stronger regulations on multiple-home owners, Jeonse listings have plunged. As Jeonse supply dwindled, a strong upward trend in Jeonse prices exceeding the Seoul average (0.46%) was observed, particularly in Seocho-gu (1.2%), Seongdong-gu (0.8%), and Nowon-gu (0.64%).

Hyosun Kim, Senior Real Estate Expert at KB Kookmin Bank, explained, "As concerns have grown that a reduction in move-in volumes and instability in rental market supply will become a reality, buyers who had been watching the market from the sidelines have shifted toward purchasing."

However, experts expect that the uptrend seen last month will prove temporary. With the resumption of heavier capital gains tax on multiple-home owners scheduled for May 9, many anticipate a large volume of properties will come onto the market, leading housing prices into a correction phase.

Youngsun Kwon, Team Head at Shinhan Bank’s Real Estate Investment Advisory Center, said, "It appears that a large number of listings from multiple-home owners who cut their asking prices below previous quote levels will be released onto the market, and this is likely to produce a certain degree of price correction," adding, "Rather than a sharp plunge, we are likely to see a partial adjustment of the steep price increases recorded last year."