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Overheated housing market expected to cool in 2022
An apartment complex in Gyeonggi Province. Korea Times file
By Lee Kyung-min
Real estate polarization to widen, sharp price fall unlikely
By Lee Kyung-min
A rapid increase in housing prices seen over the past few years will undergo adjustments this year, slowed down by tightened mortgage loan rules, heavy real estate taxes for owners of multiple, expensive homes, up to two additional key rate hikes and concerns over market bubbles, according to analysts.
Also playing into the equation is the presidential election scheduled for March 9, with major contenders vowing to overhaul tax and market policies governing the much-politicized issue tied especially close to the living arrangements for “jeonse” tenants. Unique to Korea, jeonse is a home leasing system whereby tenants pay a refundable lump-sum deposit instead of monthly rent.
Opinions are mixed over whether the recent deceleration in housing price increases marks the beginning of what the government has identified as the “much-awaited inflection point,” or just a short period of respite before resuming the years-long uptrend.
Some say the market has peaked, as evidenced by a sustained, steep fall in trading volume over the past month amid a significant drop in housing value in key areas of Seoul. Others say the price will regain upward momentum, since the supply shortage issue will not be resolved for the next few years.
The government is seeking to increase housing supply in new satellite cities near Seoul. But the construction will take years, with market sentiment highly likely to remain volatile in the meantime, swung mostly by state-run renovation and redevelopment plans that almost always cause land and apartment prices in the affected areas to go through the roof.
A slew of factors notwithstanding, polarization in the real estate market will continue, an inevitable outcome explained in part by a significant portion of the population still treating real estate as one of the major vehicles for wealth increase amid lowered borrowing costs triggered by the COVID-19 pandemic.
Taking a breather
“The market is taking a breather after years of price increase,” said Kwon Dae-jung, a professor of real estate at Myongji University.
Whether the weeks of price adjustments and a dive in trading volume will translate into a notable shift in investor sentiment remains to be seen, with a number of key price variables unlikely to align for a clear-cut outcome.
“It's all about market expectations. Monetary and regulatory tightening, as well as a heavier tax for retaining a home, certainly will deter investor sentiment to a degree. But whether those factors will be strong enough of a deterrent to trigger and sustain a price drop is something else,” said Kwon.
Market stabilization is expected to continue for the time being, according to Seoul Digital University professor of real estate Lee Young-soo.
Housing price growth has slowed since last month, influenced by central bank key rate increases and more stringent borrowing regulations. However, market participants still expect the future value of real estate to rise. Owners of homes that spiked in value are unlikely to sell up, given the high capital gains tax to be incurred, he added.
“All factors considered, the possibility of a rise is slim. But that of a fall is even slimmer, a reason why the market will experience little price fluctuation for the time being,” Lee said.
Data from the land ministry showed the number of houses traded in the market slumped to 67,159 in November of last year, a year-on-year drop of 42.5 percent from 116,758.
Seoul and Gyeonggi Province registered a year-on-year drop of 35.9 percent to 26,365, whereas the rest of the regions in the country saw the figure falling to 47,994, down 46.1 percent from a year earlier.
Polarization in the real estate market will become more pronounced, driven by demand for expensive homes in Seoul soaring further, contrasted with that for remote, non-capital areas dropping faster.
The bottom 20 percent of apartment prices in the country averaged 124.9 million won ($103,600) in December, down 840,000 won from the month before, according to KB Kookmin Bank data. But prices in the top 20 percent band averaged 1.18 billion won, up 22.3 million won.
“Apartment prices rose due to cheap liquidity pumped into the market as part of emergency policy measures, but this year will see a further price decoupling between Seoul and the rest of the country,” Park Won-gap, a senior real estate researcher at the bank said.