Expert: "Domestic Real Estate to Experience U-Shaped Recession Due to COVID-19"

Expert Emergency Survey by Housing Industry Research Institute
"Possibility of Recession Similar to 1997 Foreign Exchange Crisis and 2008 Financial Crisis"
Many Opinions Call for Preemptive Measures Covering All Means

Archive photo / Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Lim On-yu] There is a forecast that the domestic housing market will experience a U-shaped recession due to the impact of the novel coronavirus infection (COVID-19). Experts suggest that to mitigate the shock, the government should implement policies through two or three bold preemptive responses rather than dozens of tentative activation measures.

According to the Korea Housing Industry Research Institute on the 26th, an emergency survey conducted last week among experts showed that 50.8% predicted "the housing market will sharply decline over the next 1-2 years and then gradually recover." 18.8% expected "a prolonged recession lasting more than 3-5 years." However, 30.6% of respondents anticipated that "after a short-term sharp drop by the end of this year, the market will turn to a recovery trend from the first half of next year," suggesting the recession may not be prolonged.

After the 1997 foreign exchange crisis, domestic apartment sale prices nationwide dropped sharply by 18% over one year and took three years to recover to previous levels. Following the 2008 financial crisis, prices gradually declined by up to 9% over five years and then took three years to recover to previous levels. In some parts of the metropolitan area where housing price fluctuations were large, the price swings were more than twice the national average, with declines of 20-30% within 1-2 years.

The Korea Housing Industry Research Institute explained, "It is still unclear whether the impact of COVID-19 will resemble the pattern after the foreign exchange crisis or the financial crisis," but added, "The impact is expected to be no less significant than the effects of the two previous economic crises." They emphasized, "Without bold preemptive measures, the market situation could worsen to the worst-case scenario."

The past two economic crises were triggered in the financial markets and then transferred to the real economy, with the real economy crisis quickly resolved as financial restructuring was completed. In contrast, the recession caused by COVID-19 is expected to gradually spread from the real economy to the financial markets. The Korea Housing Industry Research Institute stated, "We should note that the crisis development and spread process is slow, but the duration and magnitude are likely to be prolonged."

Especially given the high trade dependence of our economic structure, even if the domestic COVID-19 situation calms early, it is expected to be difficult to reverse the recession phase until the overseas situation is resolved.

Based on this market outlook, a survey on how to respond showed that 49.3% of respondents answered that housing market regulations are overall "excessive to the extent that they hinder the basic principles of the market economy," and 70.8% said "it is appropriate to implement supplementary measures that adjust the existing excessive parts."

Regarding the priority of deregulation, the order was easing loan regulations > easing tax and transaction regulations > price regulation. Respondents also agreed that financial support for housing developers is necessary.

The Korea Housing Industry Research Institute argued that housing policies in response to COVID-19 should differ from the dozens of tentative measures taken after the foreign exchange crisis or financial crisis. Instead, after considering all policy alternatives, it is desirable to implement the first phase of priority measures in May in two stages, and then, based on COVID-19 and market trends, decisively implement the second phase around November, six months later, for effectiveness.

Meanwhile, the Korea Housing Industry Research Institute plans to hold a non-face-to-face online seminar titled "Housing Market Regulatory Innovation Measures for Overcoming the Crisis" from 2 PM to 4 PM on the 29th. In this seminar, experts will present and discuss crisis response policy alternatives that should be implemented step-by-step based on the current market situation and future outlook.

The seminar will be live-streamed on YouTube on the day (search keyword - Korea Housing Industry Research Institute), and the video will be posted on the institute’s website and YouTube channel.

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