Seoul: The Korean housing market is experiencing a significant uptick, as evidenced by a 0.26 percent rise in Seoul apartment sale prices last week, marking the highest weekly increase since August of the previous year. This growth signifies the 19th consecutive week of rising prices, highlighting ongoing concerns in the housing sector.
According to Yonhap News Agency, the upward trend in Seoul is extending its influence to densely populated areas of nearby Gyeonggi Province, including Gwacheon and Bundang. In response, the government held an emergency meeting to assess the real estate market situation. The primary factor behind the surge in housing prices is identified as a supply shortage. This year saw a 28 percent year-over-year decrease in presales of new Seoul apartments, totaling just 7,350 units, which is the lowest in four years. In densely populated areas like Seoul, new apartments are typically supplied through reconstruction or redevelopment, with spare units sold to the public.
Market sentiment is further stimulated by expectations of increased liquidity. Many anticipate the Bank of Korea will lower the benchmark interest rate from 2.5 percent to 2.0 percent in the latter half of the year due to recession concerns. Additionally, a supplementary budget worth at least 20 trillion won ($14.6 billion) is expected, including local currency vouchers promised by President Lee Jae-myung during his campaign.
The surge in apartment prices is also affected by an increase in housing loans, as people rush to secure mortgages before stricter repayment requirements are implemented. Last month, mortgage loans grew to 5.6 trillion won, the largest increase in eight months.
Public expectations of rising housing prices under the Democratic Party of Korea's administration are also contributing to the market dynamics. There is a belief that liberal government policies tend to focus on curbing demand, inadvertently driving up home prices. Historically, the Moon Jae-in administration imposed heavy taxes on multihomeowners and sought to lower presale prices of new apartments, which led to a spike in prices in affluent areas like Gangnam.
President Lee's administration has pledged to support reconstruction and redevelopment while avoiding punitive taxes on homeowners. However, the current "buy homes first" sentiment remains strong. The government has indicated that it may expand regulated areas if price instability persists, but such measures have limitations and could inadvertently increase property prices near these zones.
The pressing need is for a clear blueprint to expand housing supply. While immediate increases in supply are challenging, the government could alleviate market concerns by outlining a clear policy direction. Developing high-demand areas and reconsidering reconstruction restrictions in popular regions are crucial steps. The new administration should learn from past policy errors of stringent market regulation without supply expansion, which contributed to housing price hikes.