Two Faces of the Real Estate Market Amid the 'Inflation Shock'

Q3 Commercial Real Estate Transactions Exceed 100,000 for the First Time in 3.5 Years

Polarization Deepens Between Wealthy Increasing Tangible Assets and Ordinary Citizens Facing Higher Barriers to Homeownership

[Asia Economy Reporter Kim Min-young] As inflation risks grow with last month’s consumer price increase surpassing 3%, signs of polarization are emerging in the real estate market. Wealthy individuals with abundant cash are expanding their real estate holdings by purchasing buildings, expecting asset price increases due to inflation. On the other hand, in the housing market, stricter loan regulations combined with rising interest rates are making it even harder for genuine buyers to purchase homes. Additionally, there are concerns that young people who have taken on maximum loans ('young-kkul') could face severe damage if housing prices start to decline. There are forecasts that inflation could further deepen the asset gap.

On the 12th, RealToday analyzed statistics from the Korea Real Estate Board and found that nationwide commercial real estate transactions in Q3 this year reached 100,412, surpassing 100,000 for the first time in 3 years and 6 months since Q1 2018 (101,541 transactions). This shift in demand to commercial real estate is attributed to an environment where additional home purchases have become difficult due to strengthened loan regulations and tax burdens.

This trend is expected to accelerate as inflation concerns grow. Last month, consumer prices rose 3.2%, the highest in 9 years and 9 months. Inflation rates in major countries including the U.S. are also significant. The U.S. consumer price inflation in October exceeded 6%, reaching the highest level in 31 years. Typically, when inflation occurs, tangible assets like real estate are sought as a hedge against the declining value of money.

Park Dae-won, director of the Commercial Property Information Research Institute, said, "There are hardly any small buildings priced between 2 to 3 billion KRW recently," adding, "Due to tax burdens, investment demand has shifted from purchasing additional homes to less regulated officetels or small buildings." Rather than holding cash, people are increasing their holdings of tangible assets like real estate as a means to preserve or increase their wealth.

Conversely, if housing prices rise next year in line with consumer inflation (3%), it will become even more difficult for genuine buyers to purchase homes, deepening polarization in the real estate market. According to Seoul Real Estate Plaza, apartment transactions in Seoul in September were 2,699, the lowest this year. Due to recent government loan regulations, interest rate hikes, and fatigue from rising housing prices, non-homeowners or single-home owners find it difficult to trade up or buy even if they want to.

Yoon Ji-hae, senior researcher at Real Estate 114, said, "Housing prices naturally rise when inflation increases because they are the sum of land prices, labor costs, construction periods, and interest expenses," adding, "Real estate portfolios vary depending on cash mobilization power, inevitably causing asset disparities."

Ultimately, there are concerns that prolonged inflation will cause regional and real estate polarization. Seo Jin-hyung, president of the Korea Real Estate Society (professor at Gyeongin Women’s University), said, "In an inflation era, asset defense focuses on tangible assets like real estate and gold," adding, "When inflation occurs, polarization happens across all sectors including Seoul’s Gangnam 3 districts and other areas, Seoul and provinces, and wealthy and ordinary citizens."

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