August Seoul Sales and Jeonse Both Face Transaction Cliff... Real Buyers Cornered

Apartment, townhouse, and multi-family sales as well as Jeonse and monthly rent transactions hit bottom
House prices continue to rise amid a shortage of listings
Compounded by tightening loan regulations

Apartment complexes in the northeastern area of Seoul, including Nowon-gu and Dobong-gu. [Image source=Yonhap News]

[Asia Economy Reporter Onyu Lim] The housing transaction cliff in Seoul in August is severe. Apartments and villas, whether for sale or jeonse/monthly rent, are expected to record the lowest levels this year. Criticism is emerging that real demand buyers, anxious due to soaring house prices amid a shortage of listings, have been cornered by the government's tightening of loans, leaving them at a dead end.

According to the Seoul Real Estate Information Plaza on the 25th, the number of apartment sales transactions in August is 1,442. Compared to the transaction volumes of ▲January 5,796 ▲February 3,874 ▲March 3,789 ▲April 3,666 ▲May 4,896 ▲June 3,939 ▲July 4,609, this represents a significant decline.

The atmosphere for row houses and multi-family houses, which experienced panic buying due to rising apartment prices, is similar. The number of sales transactions in August dropped sharply to 1,838 from the 4,000 to 6,000 range (January to July).

The housing transaction cliff in Seoul is not limited to sales alone. Jeonse and monthly rent transactions have also dried up. In August, apartment jeonse and monthly rent transactions recorded 9,409 cases. This contrasts with the steady maintenance of over 10,000 cases in ▲January 15,932 ▲February 14,526 ▲March 16,456 ▲April 14,930 ▲May 15,942 ▲June 14,206 ▲July 12,527. Row houses and multi-family houses also maintained transaction volumes in the 8,000 to 9,000 range (January to July) but dropped to 4,982 in August, about half the previous level.

With three days left in August and the transaction reporting deadline being within 30 days from the contract date, the transaction volume is likely to increase from the current level. However, considering the current trend, it is expected that all sales and jeonse/monthly rent transactions of apartments and villas in Seoul will record the lowest figures this year.

The comprehensive decrease in Seoul housing transaction volumes is partly due to the summer vacation season and the slowdown caused by the spread of COVID-19, but analysis suggests that the main cause is the shortage of listings due to strengthened government regulations. In sales, listings have been decreasing since June, when the heavy taxation on multi-homeowners' property tax and capital gains tax was implemented. Jeonse listings have also become chronically insufficient since the enforcement of the new lease protection law, including the right to request contract renewal. In this situation, as both sales prices and jeonse prices rise simultaneously, the burden on real demand buyers increases, making them reluctant to proceed with transactions.

Moreover, the government's tightening of household loans has driven a wedge into the transaction cliff. Last month, household loan balances in the banking sector alone surged by 9.7 trillion won, and as the upward trend did not subside, authorities demanded strong total loan volume management measures from financial institutions. Consequently, recently NH Nonghyup Bank, Woori Bank, SC First Bank, and others have restricted or suspended some household loan products. Ham Young-jin, head of the Zigbang Big Data Lab, predicted, "With the possibility of interest rate hikes, if the financial sector strengthens DSR (Debt Service Ratio) regulations, the transaction cliff phenomenon could worsen."

What is even more abnormal is that despite the transaction cliff, record-high prices continue steadily. The 59㎡ unit at Hillstate Sangdo Central Park in Sangdo-dong, Dongjak-gu, changed hands for 1.4 billion won on the 13th, which is 110 million won higher than the actual transaction price at the end of July. The 59㎡ unit at Junggye Green 1 Complex in Junggye-dong, Nowon-gu, was also traded for 780 million won on the 6th, 60 million won higher than in April. A representative from a real estate agency in Nowon-gu said, "Listings are scarce but house prices are rising, so the anxiety among real demand buyers is growing, and price increases continue mainly in mid- to low-priced complexes."

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