Jusan Research "Both Rice and Jeonse Prices to Rise Next Year... The Problem Is Supply Shortage"

Apartment Prices Nationwide to Rise 1.8% Next Year, 1.8% in Capital Area, 2.1% in Seoul
Supply Shortage Deepens Imbalance Amid Growing Demand
New Lease Law Expected to Rapidly Increase Jeonse Prices

Panpo Xi Apartment Exterior./Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Onyu Lim] The Korea Housing Industry Research Institute (KHIRI) has forecast that the nationwide housing price increase will continue next year. Similar to this year, the shortage of new housing supply is analyzed as the key factor driving the rise in housing prices. However, the rate of increase is expected to slow down compared to this year.

On the 29th, KHIRI projected that nationwide housing prices will rise by 1.5% next year. The Seoul metropolitan area is expected to see a 1.4% increase, and Seoul itself a 1.5% increase. For apartments, the forecast is a 1.8% rise nationwide, 1.8% in the metropolitan area, and 2.1% in Seoul.

Kim Deok-rye, head of the Housing Policy Research Office at KHIRI, stated, "Based on a forecast model considering economic variables such as economic growth rate and interest rates, as well as supply-demand indices, next year's sales prices in both the metropolitan area and Seoul are expected to maintain this year's upward trend," adding, "However, the rate of increase will slow down."

KHIRI identified the accumulated supply-demand imbalance as the main cause of rising housing prices. Analyzing the factors affecting apartment price fluctuations nationwide over the past 10 years using correlation coefficients, KHIRI reported the following order of influence on housing prices: supply-demand index (-0.38), economic growth rate (0.28), increase rate of housing mortgage loans (0.25), and interest rate changes (-0.13). A negative correlation coefficient indicates that as the influencing factor rises, prices tend to fall.

In particular, for Seoul, the supply-demand index showed a correlation coefficient of -0.58, indicating a significant impact on housing prices. Notably, the influence of the multi-homeowner ratio was strongly negatively correlated at -0.71. This means that as the multi-homeowner ratio decreases, the rate of apartment price increases can become very large. This result is completely contrary to the claims of speculation deterrence advocates who argue that restricting multi-homeownership is essential for stabilizing housing prices.

KHIRI expects that due to strengthened government regulations, the possibility of improving the accumulated supply shortage is low, while demand is increasing, worsening the supply-demand imbalance and thus sustaining the rise in housing prices. Kim said, "Expectations for economic recovery, excess demand due to an increase in households entering the housing market, preference for new housing, low interest rates and expanded liquidity, and instability in the jeonse (long-term lease) market will likely continue to drive up sales prices."

KHIRI predicted that jeonse prices will rise more than sales prices due to jeonse supply falling short of actual demand and new rental laws. For apartments, jeonse prices are expected to increase by 3.3% nationwide, 3.7% in the metropolitan area, and 5.0% in Seoul.

From the business perspective, KHIRI expects housing business conditions to worsen compared to this year due to a shortage of available land, excessive financial regulations, and price caps on sales. However, although conditions may become more difficult before the announcement of tenant recruitment, the sales market for projects that can announce tenant recruitment is expected to continue to thrive.

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