By Yoon Ja-young
The housing market seems to be losing its upward momentum after the key rate hike by the United States Fed and concerns of an oversupply of new apartments.
According to Real Estate 114, a housing market information provider, the average price of an apartment in Seoul remained unchanged this week from the previous week, stopping its rise. Apartments in Gyeonggi Province and Incheon rose 0.01 percent.
“The momentum for the price rise has been slowing down since mid-November. Following the realization of negative factors on the real estate market, investors are increasingly worried about the direction of the market,” said Lee Mi-yun, a researcher at Real Estate 114.
“On top of the key rate hike in the United States and the strengthening of mortgage regulations, concern is increasing of the oversupply of housing.”
Around 320,000 new apartments are scheduled to be sold in 2016, which is the most since 2008.
The government also announced plans to strengthen mortgage regulations. In the provinces, banks currently take into account only the value of the house or apartment when someone applies for a mortgage. From May, however, they will also evaluate the applicant’s income to see whether he or she has the capability to pay back the mortgage. This means fewer people will be allowed to buy apartments or houses with mortgages.
The measure comes amid growing concerns over the record-high household debt which is nearing 1,200 trillion won, but the announcement of the plan negatively affected the housing market in the provinces. According to the Korea Appraisal Board, apartment prices in eight provinces and cities including South Chungcheong Province, North Gyeongsang Province and Daegu fell this week. The prices in Daegu, for instance, fell 0.06 percent, the first time for the city to see a fall since May 2012 when the Korea Appraisal Board started compiling the data.
Prices of old apartments in Seoul, which are subject to reconstruction plans, fell 0.09 percent, dropping for the third consecutive week. Located in key areas of the megacity, these apartments are considered mainly as investments in the housing market as their value will rise when reconstructed into new apartments.
Market watchers are divided over the direction of the housing market. Some say that the market is temporarily losing momentum as winter is traditionally a slow season for home buyers. Others, however, say that the recent slowdown may be signaling that prices will fall further.
“The housing market is likely to remain stagnant for the time being, with investors deciding to just watch where it heads,” said Kim at Real Estate 114.