Market concerned over oversupply of homes

By Yoon Ja-young

The increasing supply of new homes could weigh on the housing market, a possibility that has Korea’s Ministry of Land, Infrastructure and Transport (MOLIT) concerned.

As Minister Kang Ho-in points out, some predict the housing market will turn sluggish, with over 500,000 new apartments supplied this year. Others, however, say housing prices aren’t likely to fall within two or three years.

“With the housing prices marking a stable rise, transactions increased to the record high and the number of unsold new apartments is nearing its lowest level,” said the land minister at a meeting with the heads of housing companies, Wednesday.

“While the housing market is showing signs of recovery, there are concerns that the oversupply of homes may shock the market,” he added. “The supply of homes should be controlled at an appropriate level, taking into account the demand for new homes as well as regional circumstances.”

The number of new apartments sold between January and October this year was 420,000, which is a 47.5 percent increase compared with the same period last year. The number is expected to reach 510,000 by the end of the year. In Korea, construction companies get a deposit for new apartments before they are completely built. When considering that it takes around two or three years from deposit to completion, there could be an oversupply of new homes after two or three years. That is the reason why some analysts are predicting a fall in housing prices after 2017. Minister Kang said the government is monitoring the market over such concerns.

Analysts say that the scenario is half right.

“It depends on the region,” said Kim Eun-jin, chief analyst of Real Estate 114, a real estate market information provider. “Supply has been increasing in the provinces during the past two or three years. Risk has increased there. Housing prices have entered a correction phase in Sejong, Daejeon, and South Jeolla Province. Daegu and Busan, which have seen the highest rises, are also facing downward pressure.”

For the capital area and its surroundings, however, it is a different story, according to Kim.

“There were a lot of deposits for new apartments this year in the metropolitan area, but the actual supply of completed apartments will be an annual 130,000 between 2016 and 2017. The figure isn’t high when considering that on average 150,000 new apartments were supplied annually in the 1990s and 170,000 in the 2000s.”

However, she said that risk will increase in the Seoul metropolitan area as well if as many apartments are supplied next year as have been this year.

Ko Jong-wan, president of the Korea Asset Management Institute, agrees.

“The scenario could be right for provinces where the supply has been huge,” he said. “In Seoul’s case, however, the housing supply ratio stands at 97.5, while 105 is supposed to be the ideal number. Supply still falls short of demand.”

He also said that the supply of newly built apartments will decrease 30 percent next year compared with this year. “Moreover, the government said that it will stop developing new residential cities for three years,” he added. “It doesn’t seem right to expect the oversupply of homes will continue next year and afterward.”

He said the U.S. key rate hike expected for December, which analysts estimate will harm Korea’s housing market, isn’t likely to be as negative as feared. “The U.S. Fed hinted that the raise wouldn’t be steep and the Bank of Korea wouldn’t raise its rate immediately. The risk has decreased with regard to the interest rate.”

Kim, meanwhile, said the interest rate risk shouldn’t be overlooked in the medium to long term, but advised that those needing apartments for residential purposes and not investment purposes had better buy one if they can handle it without needing too much of a loan. “It is important to look for the right timing,” she added, recommending the latter half of next year as the best season.