Frozen Housing Market... Transaction Slowdown Amid Loan Regulations and Tax Hikes

Sudden Surge in Urgent Sales and Declining Transactions in the Seoul Metropolitan Area... Increasing Warning Signs in the Real Estate Market
September Seoul Apartment Transactions at 2,688 Units... Lowest in 2 Years and 6 Months
Sales Supply-Demand Index Falls for 6 Consecutive Weeks to 101.6, Approaching Baseline
More Cases of Actual Transaction Price Drops... Some Analyze as a Sign of Price Decline
Geumcheon, Seoul: 730 Million KRW to 600 Million KRW, Gwangjin-gu: 1.28 Billion KRW to 850 Million KRW
Interest Rate Hike Forecast and Added Regulations... Market Risks Likely to Increase if Realized

[Asia Economy Reporter Jo Gang-wook] Recently, as housing transaction volumes have sharply declined, a series of urgent sales with significantly reduced prices and falling transactions, mainly in the outskirts of the metropolitan area, have sounded warning signals in the real estate market. Unusual signs such as a surge in unsold units are also appearing in the Seoul pre-sale market, which was once considered invincible. With the government's peak house price theory combined with loan regulations and increased taxes, key market indicators are rapidly freezing. In fact, the number of apartment transactions in Seoul has recorded the lowest level in two and a half years, leading to predictions that the market may move beyond a transaction cliff to a transaction freeze.

◇ Seoul Apartment Transactions at Lowest in 2.5 Years = According to the Seoul Real Estate Information Plaza, the number of apartment transactions in Seoul in September was provisionally tallied at 2,688, confirming the transaction cliff statistically. This figure is about 36% lower than August's 4,190 transactions and is the lowest since March 2019, when 2,282 transactions were recorded, marking the lowest in two and a half years. Furthermore, the reported number of sales in October so far is 1,095, less than half of September's total. Considering the reporting deadline (30 days), concerns are rising that October's transaction volume will fall below September's, setting a historic low.

In January this year, Seoul apartment sales nearly reached 6,000 with 5,797 transactions, then dropped to the 3,000 range in February and March, rose again to the 4,000 range from May to August (nearly 3,944 in June), but have shrunk for two consecutive months as the market freezes. The situation is similar for single-family, multi-family, and row houses. September sales were 602 and 4,122 respectively, marking the lowest since February 2019 (602) and September 2020 (4,106).

The ‘Sales Supply-Demand Index,’ which indicates apartment buying and selling sentiment, also fell to 101.6, showing a decline for six consecutive weeks and approaching the baseline (100). This index recorded 107.2 in the first week of September, then dropped to ▲107.1 on the 13th ▲104.2 on the 20th ▲102.9 on the 27th ▲102.8 on October 4 ▲101.9 on the 11th ▲101.6 on the 18th ▲100.9 on the 25th, marking a seven-week downward trend. This is the lowest level in about six months since April 12, when it was 100.6. Generally, the higher the index above 100, the stronger the buying sentiment is interpreted.

Lee Hyun-chul, director of the Apartment Cycle Research Institute, said, "The biggest impact is the overall decline in buying sentiment due to loan regulations," adding, "Especially in the outskirts of the metropolitan area, there is little expectation of future price increases, and concerns are mixed because unsold units or a declining market would cause significant damage."

◇ Falling Actual Transaction Prices Amid Transaction Cliff = Since July this year, the ‘personal total debt service ratio (DSR) 40%’ regulation has been applied to loans exceeding 600 million KRW in regulated areas such as Seoul, and with the decision to apply DSR earlier to loans exceeding 200 million KRW starting next year, market hesitation is deepening. The number of listings has also increased. According to Asil (Apartment Actual Transaction Price), a real estate big data company, the number of apartment listings in Seoul has increased by about 10% compared to a month ago, reaching around 43,000. Experts analyze that young people without homes, who bought houses with ‘Yeongkkeul loans’ (loans pulled to the limit), are quickly losing buying sentiment due to fatigue from prolonged price increases and strengthened loan regulations.

Given this situation, it is not difficult to find complexes where actual transaction prices are falling. In Geumcheon-gu, Seoul, Complex C’s 114㎡ (exclusive area) was traded for 738 million KRW on the 10th of last month but sold for 600 million KRW on the 26th of the same month, dropping more than 100 million KRW in about two weeks. Complex D’s 59㎡ in Gwangjin-gu had a previous highest price of 1.28 billion KRW but was traded for 855 million KRW in early last month. The current lowest asking prices for both complexes have dropped more than 30 million KRW compared to market prices. The decline is even greater in Gyeonggi Province. Complex E’s 84㎡ in Seongnam City fell from 919 million KRW to 600 million KRW, and Complex F’s 116㎡ in Guri City dropped from 1.33 billion KRW to 1 billion KRW, each falling by more than 300 million KRW.

Ko Joon-seok, adjunct professor at Dongguk University Law School, explained, "The increase in urgent sales can be seen as a sign of a correction period because prices have risen too much," adding, "The price gap between buyers and sellers is too large, so transactions are not being realized."

◇ Increase in Urgent Sales a Signal of Market Correction? = As major indicators reflecting the real estate market trend are all showing a downward trend, some in the market analyze this as a ‘precursor to price decline.’ This is due to the spread of the perception that house prices are near their peak, the forecast of gradual interest rate hikes, and the combined effect of financial authorities’ loan regulations, which have put the brakes on the previously relentless rise in house prices. If such a correction materializes, concerns are emerging that risks in the real estate market may appear first in the outskirts of the metropolitan area.

Seo Jin-hyung, professor at Gyeongin Women’s University and president of the Korea Real Estate Society, pointed out, "Due to continuously strengthened real estate tax policies and interest rate hikes, the holding burden on homeowners has increased," adding, "The increase in urgent sales is likely to rise especially in the outskirts of Seoul, Gyeonggi Province, and local areas, and if a correction materializes due to the increase in urgent sales, the risks in these areas will increase."

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