Apartment supply glut may stabilize housing prices

By Kim Yoo-chul

A supply surge of apartments across the country in 2018 is expected to help stabilize housing prices. The surplus number of apartments will reach 440,000, up 14.5 percent from this year.

The figure is also the most since 1988, the Ministry of Land, Infrastructure and Transport and market research firms said Tuesday.

The incumbent administration is expected to welcome the increase of apartments as it has tried to curb rising real estate prices. For President Moon Jae-in, it has been one of his top economic priorities.

Under the initiative, the government plans to start large-scale construction projects aimed at supplying 2 million residential apartments in Seoul alone.

Koreans have poured their money into apartments as prices have steadily increased over the past few decades. There were a few exceptions to the rising prices such as the Asian financial crisis in the late 1990s and the global financial crisis in the late 2000s, though.

In particular, the previous Park Geun-hye administration tried to boost housing prices to invigorate the economy, which led to abrupt appreciation of real estate values. One of its negative side effects is the snowballing household debt, which has topped 1,400 trillion won.

Left-leaning President Moon promised to stop the trend. The oversupply of apartments is expected to help him achieve the initiative.

Broken down by regions, the ripple effect would be most beneficial for Gyeonggi Province, the most populous province in Korea where the supply of new apartments will near 162,000, up 25.7 percent from this year.

Seoul is expected to see 34,700 new apartments next year, an increase of 28.3 percent compared to this year.

Gangwon Province, which faces a real estate boom ahead of the PyeongChang Winter Olympic Games slated for next February, will see 16,500 new apartments next year, up by 10,000 from 2017.

The Bank of Korea (BOK) recently expressed worries over a slowdown in the housing market, promising not to take drastic steps in its monetary policies.

The housing market issue is one of the crucial factors when the central bank makes policy decisions. Analysts say the BOK will focus more on monitoring new mortgage rules.

“With tightening mortgage rules and a growing apartment supply, it’s unlikely housing prices will jump greatly next year,” said Hahm Young-jin, the head of research at Real Estate 114.

Hahm said supply gluts would also cut down on the appetites of home seekers, as an increased supply of apartments will ultimately reduce prices.

Some worry financial markets may face setbacks if property markets suffer a great downturn.

“An oversupply of housing is feared to destabilize financial markets,” said Lee Sang-jae, a Seoul-based economist for Eugene Investment & Securities.