By Kim Tong-hyung
Despite growing alarm over the health of the housing market, policymakers continue to dismiss talks of a bursting bubble and insist prices will rebound soon. But the simple laws of supply and demand suggest that prices will continue to fall.
According to data from Statistics Korea, the number of Korean houses increased 13.12 percent between 2005 and 2010, compared to 2.75 percent growth in the country’s population during the period. Seoul, Daegu and North Gyeongsang Province were areas where the number of available homes grew by more than 100,000 despite a decline in population.
After peaking in the mid-2000s on speculative demand, house prices have been freefalling since the collapse of Lehman Brothers in 2008. This led to a slew of bankruptcies in the construction sector, which had engaged in an ill-advised building spree and resulted in scores of unsold homes across the nation.
``The pace of growth in the number of homes and population differ from region to region, so the government should do a better job in tailoring housing policies for each area in attempting to restore the balance between supply and demand,’’ said an official from Real 114, a real estate market research firm.
There were 17.67 million homes at the end of 2010, when the country’s population was at 48.58 million. Gyeonggi Province, South Gyeongsang Province, South Chungcheong Province and Incheon were the other regions where the number of homes increased by more than 100,000.
Seoul and Gyeonggi Province combined for around half of the country’s homes with more than 887,000 last year. The inventory of unsold homes in Gyeonggi Province increased by 14,660 in the five years to November 2010, according to the Ministry of Land, Transport and Maritime Affairs, compared to an increase of 2,400 in Seoul during the same period.
The dismal housing market has resulted in rents soaring to record highs with demand continuing to be boosted by frustrated homebuyers.
An increasing number of first-time buyers are either delaying their decisions to get on the property ladder in the face of further property market uncertainty or cannot do so due to precarious financial situations.
Official figures show the country’s household debt nearing one quadrillion won to match an entire year’s gross domestic product (GDP), a byproduct of the public’s borrowing binge in past years as they splurged on houses in blind faith that prices will rise forever. The housing market collapse has left an alarming number of families trapped in the net of negative equity.
Although the gap between house purchase prices and rents has never been smaller, market observers believe there is still significant room for rents to further elevate.
The supply of rental homes is not increasing at a fast enough rate to meet the new levels of demand and landlords are facing the same difficulties as tenants in getting a mortgage, with financial authorities imposing stricter restrictions on lending to defuse the consumer debt threat.