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| The Samsung Raemian apartment complex in Seocho-gu, Seoul / Yonhap |
Analysts expect home prices to tend upward in long term
By Jhoo Dong-chan
Real estate speculation in Seoul and the surrounding area is showing clear signs of cooling down as a result of the government's efforts to crack down on the practice.
Following real estate measures Sept. 13 requiring banks to enforce a tougher mortgage rule ― the debt-to-service ratio (DSR) system ― the growth of home prices in the capital area, particularly apartment prices, slowed to a moderate pace and finally stabilized.
According to a report released by the Korea Appraisal Board (KAB), the fluctuation rate of home prices in Seoul remained at zero in the first week of this month. This was the first time in 60 weeks that home prices in Seoul have remained flat since September 2017.
The KAB said the Sept. 13 real estate measures drove the stabilization of Seoul home prices, but market experts say they are undergoing a correction period and will eventually trend upward again.
"The correction will continue until the end of the year," said Park Won-gap, a senior property analyst at KB Kookmin Bank.
"It is still doubtful whether the government's real estate measures are effective enough to ease the rise of home prices in the metropolitan area over the long term. There is still a strong belief prevailing among real estate investors that the patterns of the past, where home prices subside a little after government regulation, and then eventually climb back up, will take place this time as well."
Park also brought housing supply into question.
"The government announced a plan to supply about 200,000 apartments in a new satellite city possibly between Seoul and existing satellite cities such as Ilsan and Bundang, but this is just a plan. It will take at least seven years to materialize the project," he noted.
"Under such housing circumstances, it will be difficult to fully stabilize home prices in the capital in the near future."
NH NongHyup Bank mortgage loan adviser Roh Joon agreed.
"The main reason is pretty obvious. A lot of people want to live in Seoul, but there are too few apartments here," he said.
"Not many people can buy an apartment in Seoul without a bank loan. I believe the government's measures to tighten the DSR will temporary discourage the rise of apartment prices in Seoul. Compared to other major cities around the world, house prices in Seoul are still very low. People talk about the nation's aging trend so the bubble will eventually burst, but I don't agree. Foreign workers will replace the labor here, and there won't be not enough places to live in, even in a decade from now."
The DSR system measures how much a borrower has to pay in principal and interest payments in proportion to his or her yearly income. It is one of the barometers checked for risky household loans.
According to a recent outlook released by the Asian Development Bank, Korea's economic growth will slow further not only because of the ongoing U.S.-China trade war but also because of the high degree of vulnerability of its housing sector caused by loose credit policies in recent years.
"Elevated housing prices threaten severe growth downturns if prices reverse abruptly," it said in the outlook.
"Housing prices that have undergone sharp and sudden reversals, empirical studies have shown, tend to be associated with longer and deeper slowdowns."
