"SARS and MERS Had 'Minimal' Impact on Housing Prices... Is COVID-19 Different?"

On the 20th, as the KOSPI and KOSDAQ indices started higher, dealers were busy working in the dealing room of KB Kookmin Bank in Yeouido, Yeongdeungpo-gu, Seoul. The won-dollar exchange rate opened at 1,253.7 won, down 32.0 won. Photo by Moon Honam munonam@

[Asia Economy Reporter Yuri Kim] As the novel coronavirus infection (COVID-19) crisis shows signs of prolonged duration, interest is growing in the housing price trends during past large-scale infectious disease outbreaks. This is because concerns are rising that the economic recession caused by the unprecedented spread of infectious diseases will also impact the real estate market.

On the 24th, the Korea Construction Industry Research Institute analyzed nationwide apartment sale prices during past infectious disease outbreaks worldwide since 2000, including Severe Acute Respiratory Syndrome (SARS), H1N1 influenza (swine flu), and Middle East Respiratory Syndrome (MERS). The results showed that housing prices rose by up to 20% even after these outbreaks. Forty months after the SARS outbreak in March 2003, nationwide housing prices increased by 20.4%. Similarly, 40 months after the H1N1 influenza outbreak (April 2009) and MERS outbreak (May 2015), prices rose by 16.0% and 8.9%, respectively, according to the Korea Construction Industry Research Institute (based on KB Kookmin Bank’s monthly nationwide apartment price index). This essentially means that health risks from infectious diseases did not significantly affect the real estate market. The outbreak dates for each infectious disease were set based on the World Health Organization (WHO) initial situation report release dates, except for MERS, which was localized in Korea and used the date of the first confirmed domestic case.

However, the Korea Construction Industry Research Institute assessed that the current COVID-19 crisis could exert downward pressure on the real estate market, as its impact on financial markets and the real economy is greater than past infectious disease outbreaks. After previous outbreaks, the stock market (KOSPI) experienced short-term corrections ranging from -5% (H1N1 influenza) to 18.5% (SARS). In contrast, as of the 39th day after the COVID-19 outbreak on the 18th, the market showed a volatility decline of over 30%. Furthermore, significant changes are being detected in financial markets, including declines in the U.S. stock market, drops in 10-year government bond yields, and interest rate cuts by central banks worldwide.

The real economy is also in a downturn. Crude oil prices, a barometer of the real economy, have fallen to their lowest level since 2002. This has caused financial markets in the Middle East, Russia, and Mexico to falter. Market forecasting agencies are revising down economic growth rates, particularly in the Asia-Pacific region.

The Korea Construction Industry Research Institute particularly highlighted the risk that unemployment caused by the real economy’s recession could act as a downward factor for the real estate market. In fact, domestic unemployment benefit payments reached a record high of 789.1 billion won last month, a 31.8% increase compared to November 2019.

Researcher Seonghwan Kim of the Korea Construction Industry Research Institute said, "For people in their 30s and 40s, who spend a significant portion of their earned income on principal and interest repayments for housing purchase loans, the emergence of unemployment issues could exert downward pressure on the housing market." According to the 2019 Household Finance and Welfare Survey, in the Seoul metropolitan area, people in their 30s and 40s have mobilized various funds to purchase homes over the past two years, resulting in principal and interest repayments increasing by 21.0% and 6.9%, respectively, compared to the previous year for those age groups.

Researcher Kim added, "Although strong financial regulations have been applied to the housing market domestically for several years, keeping short-term financial risks low, it is necessary to prepare in advance for threats that long-term real economy stagnation may cause."

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