"2020 Sales and Jeonse Prices Rise Simultaneously in 수도권 and 지방"

Zigbang Nationwide Apartment Market Review
Surge in Money Supply Due to Interest Rate Cuts Amid COVID-19 Uncertainty
Worsening Jeonse Shortage Due to Low New Apartment Supply

Seoul apartment view from Namsan [Image source=Yonhap News]

[Asia Economy Reporter Onyu Lim] This year, the apartment market exhibited characteristics of simultaneous price increases in both sales and jeonse (long-term lease) markets, as well as in the metropolitan area and provincial regions, amid uncertainties caused by the novel coronavirus disease (COVID-19). While the jeonse shortage intensified due to increased population movement and the enforcement of the new Lease Protection Act, the supply of new apartment units also declined. On the 7th, Zigbang reviewed the apartment transaction and occupancy markets of 2020 and revisited the main characteristics.

Apartment sale prices maintained an overall upward trend, with a temporary stabilization observed in April and May due to external shocks from COVID-19. However, as the base interest rate was lowered to 0.50% (0.75% on March 18, 0.50% on May 29) to counter the economic downturn and the rapid increase in money supply led to increased investment in asset markets, the rate of apartment price increases gradually expanded.

From June onwards, the nationwide monthly increase rate remained above 0.40%, with July recording a 0.89% rise. The five provincial metropolitan cities and other provincial areas, which had been in a prolonged slump, also shifted back to a recovery trend in June, showing strength in the sales market even in provincial regions.

As of November, the apartment sale price change rate by city and province was highest in Sejong at 43.64%, followed by Daejeon at 16.01%, Gyeonggi at 11.10%, and Incheon at 8.80%. Sejong saw a significant increase due to the emergence of the second capital relocation issue and rising local demand. In Daejeon, increased internal demand led to active transactions centered on small-sized apartments, driving the upward trend.

The volume of apartment sales transactions reached a record high of 738,000 cases as of October. The metropolitan area accounted for 369,000 cases, the five provincial metropolitan cities 161,000 cases, and other provincial areas 209,000 cases. Apartment transaction volumes, which had been increasing since the second half of last year, showed a pause in April and May this year due to reduced outdoor activities caused by COVID-19, but transactions increased to over 100,000 cases monthly in June and July. Although transaction volumes decreased again from August, they remained higher compared to the five-year monthly average of 54,465 cases.

As the government strengthened policies to curb short-term speculative transactions, pre-sale right resale transactions significantly decreased. The share of pre-sale right resale transactions in total transactions dropped to 7.46% (96,752 cases), marking the lowest proportion since 2016. Gift transactions reached a record high at 5.72% (72,349 cases). External demand from outside the jurisdictional city or county accounted for 47.49%, the highest proportion ever recorded.

The apartment jeonse price change rate has maintained an upward trend since turning positive in October last year through November this year. Although the upward trend slowed in April and May due to COVID-19, jeonse prices have since risen sharply. Zigbang explained, “New residential demand increased due to population movement that started at the end of last year.” Based on total population inflow (as of October this year), the year-on-year increase rates were record highs nationwide at 9.1%, metropolitan area at 9.9%, five provincial metropolitan cities at 10.7%, and other provincial areas at 6.7%.

As of November this year, Sejong recorded the highest apartment jeonse price increase rate at 49.34%. Regions with increases higher than the national average, in the same order but different from sales, were Ulsan at 12.97%, Daejeon at 12.18%, Gyeonggi at 8.27%, and Incheon at 7.86%. Jeju saw a simultaneous decline in both sales and jeonse prices, with a -1.29% change. Sejong’s jeonse prices rose sharply due to the capital relocation issue and reduced occupancy supply, similar to the sales market. Ulsan experienced a large increase in jeonse prices as employment conditions improved with the recovery of its main local industries.

From January to October, apartment jeonse transaction volume (based on confirmed dates) reached 445,000 cases in 2020, the highest since real transaction data disclosure began in 2011. All regions recorded record-high jeonse transactions, with 275,000 cases in the metropolitan area, 71,000 cases in the five provincial metropolitan cities, and 99,000 cases in other provincial areas. However, jeonse transaction volumes have sharply decreased since the second half of the year.

In 2020, a total of 270,996 households (410 complexes) moved in. By region, 144,586 households moved into the metropolitan area, and 126,410 households into provincial areas. The apartment occupancy market was also affected by social distancing measures due to the spread of COVID-19. Variables such as strengthened pre-inspection regulations and delays in occupancy due to postponed sales of existing homes existed. However, with strengthened quarantine measures, sequential pre-inspections, and flexible occupancy timing, most complexes appear to have proceeded with occupancy relatively smoothly.

Next year, a total of 227,836 households are scheduled to move in. Although this is about 16% less than this year, new apartment occupancy will proceed mainly in areas attracting demand, drawing more attention.

By region, 128,993 households will be supplied in the metropolitan area, and 98,843 households in provincial areas. In the metropolitan area, Seoul will have 27,018 households, Gyeonggi 86,648 households, and Incheon 15,327 households moving in. New apartment supply will occur in Seoul’s Gangnam, Seocho, and Songpa districts. Half (21 complexes) of the 42 occupancy complexes are those completed through reconstruction and redevelopment projects. Notably, for the first time since October 2017, occupancy supply (based on pre-sale housing) will be provided in Wirye New Town, attracting attention. Gyeonggi is expected to see a slight increase in supply compared to this year (85,695 households). New apartment move-ins will mainly occur in the southeastern areas with excellent access to Gangnam, such as Gwacheon, Pangyo, Pyeongchon, and Misa.

Ham Youngjik, head of Zigbang Big Data Lab, predicted, “In 2021, as COVID-19-related stimulus measures and low interest rate trends continue, liquidity inflows into asset markets will stimulate the sales market.” He also pointed out that the reduced supply of new apartment occupancy due to decreased land supply is a negative factor for sales market stability. In provincial areas, external demand avoiding metropolitan regulations is expected to be a major variable in the transaction market.

The jeonse market’s mandatory contract period was extended from one year in 1989 to two years, and now to four years after 30 years, changing the rules of the transaction market. With new transaction rules applied for the first time in 30 years, confusion is expected to continue for some time, and price instability and apparent transaction contraction are likely to persist. Due to contract renewals reducing the number of listings, mismatches between the needs of demanders seeking new contracts and available jeonse listings are expected to continue.

Apartment occupancy next year will be higher in the second half than in the first half. The first half is scheduled for 97,903 households, and the second half for 129,933 households. Unlike this year, when year-end occupancy volumes were relatively low, next year is expected to have relatively large volumes scheduled for November and December. Lab head Ham explained, “Although the total occupancy volume in 2021 is not large, new apartments will be supplied mainly in areas with high demand and preference, so the perceived decrease in volume by demanders may not be significant.”

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