"Profitable Properties Bought from Outside, Toxic Assets Accumulate" Early Signs of Recovery in Regional Real Estate

Archive photo / Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Yuri Kim] Although indicators of local housing transactions are improving, polarization is occurring by region, requiring caution from investors. The proportion of outside investors is high, and the number of severely unsold units is increasing. Experts point out that if the real estate market declines due to external factors such as a global economic recession, investment demand could rapidly withdraw.

According to the Korea Construction Industry Research Institute on the 5th, recent local housing transactions have seen an increase in external demand inflow and a clear differentiation by region. Last year, external inflow demand in local metropolitan cities excluding Incheon accounted for 52.7% of total transactions, an increase of 0.9 percentage points compared to the previous year. The external inflow demand in these areas was around 43.4% in 2006 but gradually increased to exceed half at 51.7% in 2017. The upward trend continued with 51.9% in 2018 and 52.7% last year.

However, local housing demand tends to concentrate in metropolitan cities. External inflow demand in other areas excluding metropolitan cities is gradually decreasing. Last year, the proportion of external demand in these areas was 36.6%, which is actually lower than the average of 36.9% from 2006 to last year. This contrasts with the external demand proportion in local metropolitan cities last year, which was 5.5 percentage points higher than the average of 47.2% during the same period.

Internal demand within the local real estate market is also largely exhausted. According to the Korea Construction Industry Research Institute, the cumulative internal demand exhaustion rate for housing nationwide over eight years averages 18.7%. During the same period, the Seoul metropolitan area was 19.0%, and local metropolitan cities showed a higher level at 30.9%. Gwangju Metropolitan City even showed a cumulative sales transaction volume of 106.0%, exceeding the number of housing-owning households in the entire area.

Although unsold units nationwide decreased by 15.6% year-on-year to 45,000 units as of November last year, unsold units after completion remain unresolved. The Gyeongnam region recorded its highest level in 108 months.

For this reason, the recent housing market upswing centered on local metropolitan cities is likely a short-term rise brought by outside investors rather than local demand. The Korea Construction Industry Research Institute emphasized that resolving the ongoing stagnation of root industries and the weakening of financial soundness in local markets is necessary to create healthy demand. The local economy is greatly influenced by root industries, which directly affect housing demand. Kim Seong-hwan, a senior researcher at the institute, pointed out, "Only by actively responding to the changing industrial structure to induce population inflow and regional economic revitalization can healthy housing demand originating internally be created."

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