Concerns are mounting that the property market might cool rapidly as the number of unsold apartments soared last month.
According to the Ministry of Land, Infrastructure and Transport, unsold apartments numbered 49,724 as of the end of November, up 54.3 percent from a month earlier. The figure was the largest since the 51,287 in July last year. The number of unsold apartments increased sharply in the Seoul metropolitan area, with month-on-month growth reaching 70 percent.
The explosive rise in the number of unsold apartments may have been anticipated, given that construction companies have rushed to build apartment units, riding on the government’s push to stimulate domestic consumption by boosting the real estate sector. In fact, the government approved 84,000 apartments to be put on sale in October and another 73,000 in November, the largest since the land ministry began compiling relevant data in 2007.
Of course, some market watchers play down concerns about the abrupt rise in unsold apartments, saying that it is a temporary phenomenon. But warnings that the property market may be cooling down must not be ignored.
These concerns are verified by statistics. The number of apartment transactions in Seoul dipped from 11,000 in October to 9,900 in November and 7,400 in the first 28 days of December. Apartment prices, which had been rising nationwide, also remained steady or began to fall.
The problem is that circumstances will go from bad to worse next year.
The government plans to oblige banks to toughen control on mortgages next year to put the brakes on ever-increasing household debt, and this will certainly dampen the real estate market. Also, chances are high that local interest rates will turn upward following the U.S. Federal Reserve’s first rate hike in a decade earlier this month.
In contrast, the oversupply of apartments is expected to continue. A land ministry report shows that the number of housing units approved for construction will surpass 700,000 this year for the first time in 25 years.
Still, the government appears cautious about the oversupply argument. But the most important thing is to not put out the embers of the real estate business at a time when the momentum of recovery of the real economy is still feeble.
Toward that end, the government should act to control construction permits. Builders also ought to adjust their construction plans voluntarily.