"Second Half Housing Prices Expected to Rise 2.5% in Seoul Metropolitan Area, Over 7% in Gangnam 4 Districts"

Hankyung Research Institute 'Analysis of Government Real Estate Policy Impact and Housing Market Outlook'

[Asia Economy Reporter Dongwoo Lee] A study has forecasted a sharp rise in housing prices in the second half of this year, centered on the Seoul metropolitan area and the Gangnam 4 districts. This is attributed to the strengthening of location preference phenomena and the government's supply measures falling short of expectations.

On the 20th, the Korea Economic Research Institute announced in its report titled 'Analysis of the Impact of Government Real Estate Measures and Housing Market Outlook for the Second Half of the Year' that housing prices are expected to rise by 0.8% nationwide and 2.5% in the metropolitan area in the second half of this year.

In particular, popular areas in Seoul such as the Gangnam 4 districts (Gangnam, Seocho, Songpa, Gangdong) are expected to record a rise of more than 7%, due to the strengthening of location preference phenomena and the government's supply measures not meeting expectations.

The report analyzed that abnormal housing price increases continue due to panic buying caused by multiple government measures. According to housing market trend analysis, despite the June 17 real estate measures and the July 10 follow-up measures, housing sale prices have expanded their increase mainly centered on Seoul.

Unlike the past, when there was a waiting period of at least 2 to 3 months after government measures were announced, the report noted that housing prices in popular Seoul areas, which had shown a calming trend since the December 16 measures, have shifted to a rapid upward trend, with both housing prices and transaction volumes expanding simultaneously despite the measures.

The report explained that confusion caused by multiple government measures and anxiety due to extreme regulations have induced panic buying and fear-driven trading psychology among housing market participants, which is the fundamental cause of the recent abnormal rise in housing prices.

In addition to the loss of rational decision-making functions in the housing market caused by panic buying, the report analyzed major factors driving housing price increases as including a shortage of housing supply available within the year, excess liquidity exceeding 3,000 trillion won, large-scale compensation related to the 3rd new town developments, increased indirect transactions such as gifts by multi-homeowners, and rapid absorption of listings by cash holders outside residential areas in response to multi-homeowners selling.

According to simulations using a dynamic and probabilistic general equilibrium model analyzed in the report, when external shocks suppressing housing demand such as government measures occur, housing prices initially fall sharply but then quickly recover and rise to levels even higher than before the shock. In contrast, contraction effects on major macro variables such as consumption and total production occur over a longer period.

The analysis showed that housing prices fall to about 4% over two quarters after government measures, then rapidly recover and rise to about 2% higher than pre-shock levels. Meanwhile, consumption and total production take more than 15 quarters to return to previous levels after declining.

Unlike the metropolitan area and the Gangnam 4 districts, housing prices in provincial areas have not revived due to overall economic contraction and weak housing demand. As multi-homeowners increase sales of houses located in provincial areas, the rise is limited to 0.1%, further intensifying the polarization between the metropolitan area and provinces.

Seungseok Lee, a senior researcher at the Korea Economic Research Institute, said, “Despite comprehensive real estate demand suppression policies, the housing market in the second half of the year is expected to show a steep upward trend centered on popular areas with good locations, due to continued balloon effects by housing price range and region, increased liquidity from interest rate declines, and strengthened chasing buying from panic purchases.”

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