Housing market recovery to continue

A woman walks past a real estate agency in Gangnam-gu, southern Seoul, in this file photo taken on Feb. 11. The housing market is expected to extend a modest recovery on government steps to boost the real estate market. / Yonhap

By Yoon Ja-young

• Published Feb 17, 2015 3:06 PM KST
• Updated Feb 17, 2015 3:06 PM KST

By Yoon Ja-young

Cha Ju-young, who works at a bank in Seoul, recently bought an apartment on a mortgage in downtown Seoul. He decided to do so when his homeowner requested him to pay 130 million won more as a jeonse deposit, up from the current 300 million.

Jeonse is Korea’s unique rental system where a tenant gives the landlord a large fixed-sum deposit over a rent period of typically two years. At the expiration of the contract, the landlord is obliged to return the full amount back to the tenant.

Jeonse prices have been soaring during the past few years as many people chose to live in such a house instead of buying one, on the pessimistic outlook for the real estate market.

Now, however, jeonse price has risen so much that it is pressuring people to buy instead.

In the case of Cha, the price of the 106 square meter house stands at around 530 million won. As the landlord is demanding 430 million won as jeonse deposit, it means he can buy the house and be a homeowner by adding just 100 million won.

Kim Eun-jin, chief analyst of Real Estate 114, a real estate market information provider, said that people like Cha arte contributing to the recovery of the housing market.

“The transition from jeonse tenant to homeowner is notable in northern and southwestern Seoul, where the gap between jeonse and the housing price is small,” Kim said. “Apartment transactions are likely to increase further in these areas,” she added.

Even so, the rise is minimal compared with the times of the housing bubble. Last year, housing transactions stood at 1 million, the biggest ever since 2006 when over a million houses were sold. In the real estate market, housing prices generally rise when transaction increases, as investors are willing to buy houses at higher prices on expectation of further rises. In 2006, for instance, the housing price rose by 11.6 percent. Last year, however, the housing prices rose by only 2.1 percent despite the huge number of transactions.

Real estate market experts say that only those who really need homes are buying houses, not those seeking investments. Analysts thus expect a slow recovery of the market instead of sharp rise in prices.

Kim said that the high jeonse prices will sustain the apartment prices.

“The soaring jeonse prices are increasing apartment transactions. When considering that jeonse prices aren’t likely to fall for time being, there will be those determined to buy homes.”

Hana Institute of Finance pointed out in a report that housing transactions increased a lot from the previous year in January, though it is generally regarded as the slow season.

“With the passage of the bills promoting real estate transactions, there are expectations of a recovery in the housing market,” it said.

The report explained that the direction of the market will be determined by those living in jeonse homes ― how many of them will decide to buy their own house?

“The interest rate is remaining low, and the government is expanding the new low interest rate mortgages to benefit more people wishing to buy a house. The conditions are continuously improving for those buying homes on mortgages,” the report noted.

Kim at Real Estate 114 expected a slow recovery after the Lunar New Year holidays as well.

“After the holidays, a number of construction companies have a supply of new apartments scheduled. As the government also eased restrictions in this market, demand is likely to increase,” she added.

The price income ratio of Seoul stood at 8.8 as of last September, which means an ordinary household should save all of their annual income for almost nine years to buy a house in Seoul. That is higher than New York’s 6.1 or Tokyo’s 4.9.