Confusing Real Estate Market... Will Seoul's 'House Prices Decline' Begin in Earnest?

Rapid Fire Sales in Gangnam Area... Decline Accelerated by COVID-19
House Price Collapse Expected if Economic Recession Deepens
However, Gangnam Homeowners May 'Hold Out'... Uncertainty Increases

[Image source=Yonhap News]

[Asia Economy Reporter Moon Jiwon] Amid the halt in the rise of apartment prices in Seoul due to the spread of the novel coronavirus infection (COVID-19), the real estate market continues to experience a confusing atmosphere as various negative and positive factors overlap.

While areas densely populated with mid-to-low priced apartment complexes still maintain an upward trend, urgent sale properties with price drops of several hundred million won are appearing in the Gangnam area, which has driven Seoul's housing price increases so far, leading to forecasts that Seoul's housing prices may soon shift to a full-fledged downward trend.

Looking at the weekly apartment price trends recently announced by the Korea Real Estate Board on the 21st, as of the 16th, Seoul apartment prices turned to a flat trend for the first time in eight months.

Although Seoul housing prices maintained a slight upward trend even after the December 16, 2019 measures, the recent acceleration of domestic and international economic downturns due to the spread of COVID-19 appears to have affected Seoul housing prices.

The Korea Real Estate Board analyzed, "Uncertainty has spread due to the COVID-19 situation, concerns about economic recession, and strengthened loan regulations," adding, "The decline in buying demand mainly in Gangnam area reconstruction and high-priced complexes and the drop in listing prices have expanded the range of price decreases."

In fact, urgent sale properties are flooding the Gangnam area. An 85㎡ (exclusive area) apartment in Banpo Rich?, Banpo-dong, Seocho-gu, was traded for 2.17 billion KRW on the 14th of last month. Compared to the 2.68 billion KRW sale on December 7 last year, this is a price drop of over 500 million KRW. A 56㎡ apartment in Gaepo Jugong 1 Complex, Gaepo-dong, Gangnam-gu, was traded for 2.15 billion KRW on the 12th, nearly 700 million KRW lower than the end of last year.

Statistically, the downward trend in Gangnam area housing prices is clear. This week, the Gangnam 3 districts?Gangnam (-0.12%), Seocho (-0.12%), and Songpa (-0.08%)?saw an expansion in the decline range as urgent sale prices in some complexes such as Banpo and Jamsil-dong traded at more than 10% below the highest prices. Supported by the decline in the Gangnam 3 districts, apartment prices in the southeastern region fell by 0.09% compared to the previous week.

[Image source=Yonhap News]

On the other hand, so-called 'Nodogang' areas such as Nowon (0.06%), Dobong (0.08%), and Gangbuk (0.08%) maintained relatively high growth. This is interpreted as relatively high demand due to many mid-to-low priced apartments under 900 million KRW, which are less affected by loan regulations.

Industry insiders believe that if the economic recession prolongs, a decline in Seoul housing prices is inevitable. This is because the real estate market cannot be completely unaffected by the decrease in purchasing power and economic downturn caused by the spread of COVID-19. There is also analysis that urgent sale properties are likely to appear not only in the Gangnam 3 districts, where prices have risen significantly, but also in Mapo, Yongsan, Seongdong, and Gyeonggi-do areas such as Suwon and Yongin.

However, there is also considerable analysis that the price decline will be limited. In particular, if homeowners in the Gangnam area endure the holding tax burden caused by the recent sharp rise in official property prices, housing prices could become even more resilient.

Kwon Il, head of the research team at Real Estate Info, said, "It cannot be said that there is no possibility of a price decline," but added, "Urgent sale properties may appear in complexes where holding taxes increase significantly, but there are buyers waiting for such cheap listings. Once people with cash start grabbing urgent sales, it becomes difficult for prices to fall further."

Kwon also said, "For housing prices to fall significantly, a chain reaction must occur. Although the real economy and stock market are not doing well, because of that, real estate remains one of the few worthwhile investment options," adding, "It is unlikely to lead to a housing price crash."

This content was produced with the assistance of AI translation services.